canadian federation of pensioners to industry canada marketplace framework policy branch may 28,...
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Canadian Federation of Pensioners
to
Industry Canada
Marketplace Framework Policy Branch
May 28, 2013
CONFIDENTIAL. © 2013 Tirna Partners Inc. All rights reserved. 2
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
CONFIDENTIAL. © 2013 Tirna Partners Inc. All rights reserved. 3
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, 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
CONFIDENTIAL. © 2013 Tirna Partners Inc. All rights reserved. 4
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
CONFIDENTIAL. © 2013 Tirna Partners Inc. All rights reserved. 5
Pensioners Facing Pension Reductions or Loss
DBPP
underfunding
is common,
and worsening
Source: InfoPensions 08, November 2012, OSFI NEED ORiGINAL GRAPHIC.
CONFIDENTIAL. © 2013 Tirna Partners Inc. All rights reserved. 6
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.
CONFIDENTIAL. © 2013 Tirna Partners Inc. All rights reserved. 7
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.
CONFIDENTIAL. © 2013 Tirna Partners Inc. All rights reserved. 8
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.
CONFIDENTIAL. © 2013 Tirna Partners Inc. All rights reserved. 9
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
CONFIDENTIAL. © 2013 Tirna Partners Inc. All rights reserved. 10
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
CONFIDENTIAL. © 2013 Tirna Partners Inc. All rights reserved. 11
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+
CONFIDENTIAL. © 2013 Tirna Partners Inc. All rights reserved. 12
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?
CONFIDENTIAL. © 2013 Tirna Partners Inc. All rights reserved. 13
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
CONFIDENTIAL. © 2013 Tirna Partners Inc. All rights reserved. 14
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.
CONFIDENTIAL. © 2013 Tirna Partners Inc. All rights reserved. 15
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.
CONFIDENTIAL. © 2013 Tirna Partners Inc. All rights reserved. 16
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