The Ontario government is moving to cut the support net for pensioners just as General Motors Corp. GM-N and Chrylser LLC teeter on the edge.
Amid fears of a bankruptcy protection filing by one of the major auto makers, the province is moving to limit the amount of money it would have to pay in a pension bailout.
Proposed new rules, contained in the province's 114-page budget bill, would give the finance minister new powers to deal unilaterally with a pension crisis, and grant Ontario's pension support fund money, but would also make it illegal for the fund to run a deficit.
The bill covers pensions in general, and does not target the auto industry specifically, but comes as General Motors and Chrysler seek government bailouts in a bid to remain afloat.
The province's safety net has been in place since 1980, and provides retirees with up to $1,000 a month if a pension plan cannot pay full benefits.
Premier Dalton McGuinty yesterday described the money available as "very, very modest."
"That comes nowhere near meeting any liabilities - for example, for the auto sector alone, to say nothing of all the other sectors," Mr. McGuinty said.
He added there is not "an endless supply of money" for pension bailouts.
Mr. McGuinty said his government has some responsibility to help the pensioners of General Motors of Canada Ltd. and Chrysler Canada Inc.
"We have a political and moral responsibility to pensioners," he told reporters.
But the Pension Benefits Guarantee Fund is now in deficit, leaving it ill-equipped to address any pension shortfall in the province.
"We would never have all the money that would be needed to top it up to meet all the demands for all Ontarians who are experiencing troubles with their pension plans," Mr. McGuinty said.
An official in provincial Finance Minister Dwight Duncan's office said the changes were necessary because the fund hasn't been properly managed for decades and the financial turmoil has highlighted that. "We want to get it back on track so that it's capable of serving the intended purpose," the official said.
The omnibus budget bill contains a provision to amend existing legislation, giving the finance minister new powers to deal unilaterally with such a crisis. Under existing legislation, the minister needs authorization from the lieutenant-governor to make loans to the fund. But under the proposed changes, the minister could make grants to the fund on his own.
The budget bill also says the legislation will be revised to state that the fund's liabilities cannot exceed its assets.
"I really think it's the GM issue," said Mitch Frazer, a pension lawyer at Torys LLP. "This is the last remaining too-big-to-fail plan."
Pension experts estimate GM Canada's total pension shortfall may exceed $6-billion. Chrysler says its plans should be almost fully funded this year.
There are also fears that auto parts makers with large operations in Ontario would collapse if one or both of the auto makers filed for court protection. Some parts companies could fail even if GM and Chrysler succeed in restructuring outside of the courts.
"The government is basically saying 'If we have a whole series of bankruptcies, we're not going to be there to backstop the fund, let's make that very clear,' " Mr. Frazer said. "All you need is one large bankruptcy and you wipe out all the money in the fund."
Canadian Auto Workers president Ken Lewenza said the Ontario government is partly responsible for the pension crisis at GM Canada because of 1992 legislation that enabled the company to underfund its own plans. "GM has paid a very substantial proportion of the premiums that have been collected over the years by the Pension Benefit Guarantee Fund," he said in a statement. "So for the government to now suggest that retired auto workers would be denied the protection of this fund is unconscionable."
Retired auto workers worried about their pensions dogged federal Finance Minister Jim Flaherty yesterday in Oshawa, Ont., yesterday. Ontario NDP MPP Paul Miller called on the McGuinty government to "step up to the plate" and create a different type of pension protection in the province.
