In this era of widespread discord, it is a rare thing to see unanimity – and that’s especially so in rancorous venues like the House of Commons.
Last week, however, members of Parliament voted 318-0 in favour of a Conservative Party private member’s bill at third reading. The proposed changes, now being reviewed by the Senate, would give pension plan members front-of-line status if their company goes bankrupt and there’s a shortfall in promised defined benefit (DB) payments to workers.
The principle behind the bill is sound: workers who have over the years paid into their pensions and been promised a set income should be able to count on that money in their retirement years.
That is, however, not always the case. The two often cited examples of how things can go badly wrong, Nortel and Sears Canada, involved several tens of thousands of workers and pensioners. In both cases, the struggling companies, before they hit bankruptcy proceedings, failed to put enough money aside to keep their pension obligations at levels to cover all future costs.
Those shortfalls meant workers saw a combination of lower than promised pension payments and benefits, such as health and dental plans. The portion of the pension that was properly funded was fine. It was the unfunded gap that caused hardship for so many people.
Under current Canadian law, workers are basically at the back of the line when it comes to divvying up assets in a bankruptcy proceeding. Ideally, such episodes see a company reconstituted. But other times, like Nortel and Sears Canada, it is the end of the road. In either outcome, workers hoping to see some of their unfunded pension covered rank as unsecured creditors, behind corporate lenders such as banks, who are generally secured creditors.
Over the past four decades, these episodes have hurt an estimated 250,000 Canadians who received smaller pensions than they should have.
This is not how things should turn out. But a solution isn’t necessarily simple or easy. The principle is obvious. The details and potential impact are more complicated.
That’s why efforts over the years in Parliament to advance legislation have regularly emerged but reliably failed. The last similar attempt, a Bloc Québécois private member’s bill, passed second reading in 2021 but died when the election was called.
Bill C-228, tabled by Conservative MP Marilyn Gladu, aims to compile the best parts of previous bills. It has support from the NDP and the Bloc, and the Liberals are also on board.
The legislation isn’t specifically written for seniors but, politically, Liberals are finding it wise not to oppose such changes, as they have previously. Who would stand against a pensioner getting what they deserve, and instead seem to favour the big banks?
While the ideas in the bill make sense, a closer look is definitely merited in the Senate. Pension experts suggest some of the wording isn’t as clear as it should be, and additional work on how the bill, if it becomes law, takes effect in four years’ time could be important.
Trade-offs also have to be acknowledged. Banks and other critics note that companies with underfunded DB pensions could have to pay more for loans, to cover the added risk in how money would be paid out in a possible bankruptcy. In theory, more expensive lending could curtail a business’s ability to hire more workers. Then there’s the question of a company in bankruptcy that could reorganize its affairs and stay in business; a priority on pensions could complicate that situation.
Critics also say the proposed law might propel a swifter decline of DB pensions. Less than 10 per cent of workers in the private sector have these plans, half that of two decades ago, according to Statistics Canada. Data show there are 1.2 million Canadians in private sector DB pensions, and it’s estimated about 2.8 million retirees have the same.
The bottom line is that, while the problem is knotty, the principle of the matter is straightforward, as backed by a unanimous House of Commons. Individual workers promised a set pension benefit shouldn’t suddenly be left with less in a bankruptcy when major institutions like banks come out better.
The bill’s aim is the right one and, with some work in the Senate, the final result should produce a fairer balance.