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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
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Canadian Federation of Pensioners to Industry Canada Marketplace Framework Policy BranchMay 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
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, MunicipalRetireesof 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 • 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 25% 20% 15% 10% NEED Original GRAPHIC. 5% 0% 2007 2008 2009 2010 2011
Pensioners Risk Loss of Income - Ontario 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.JanisSarra: A Comparative Study of 62 Jurisdictions 2008
International Initiatives • Pension Trust Fund Treatment When Sponsor Insolvent
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 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.
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.