Parliament to vote on securing pensions at failing companies
Politicians of all federal parties are being pressed to vote Wednesday to raise the security of vulnerable pension plans.
Pensioners are urging them to support a bill from a Thunder Bay New Democrat that would bring Canada’s bankruptcy law up to the standard in most other developed nations.
“Do you want to support legislation that protects vulnerable Canadian citizens, or do you want to protect wealthy banks, bond holders and hedge funds?,” chides a letter from General Motors of Canada Ltd. pensioners.
The bill would give pension promises equal standing with secured loans when companies restructure under bankruptcy protection, or go out of business.
GM Canada pensions have already been partly propped up with money from government loans, but benefits would be cut sharply if GM were to fail.
Pensioners from Nortel Networks Corp. have also been trying to raise support for the bill, even though it will not help them.
The man behind the bill, John Rafferty of Thunder Bay-Rainy River, was thinking of AbitibiBowater Inc. workers and pensioners in his riding when he proposed his Bill 501.
The forestry giant is aiming to emerge from bankruptcy protection later this year, but pensioners could still be vulnerable for years to come.
NDP officials are frank with Nortel pensioners who call about Rafferty’s bill, warning them it will be too late to help them.
Lawyers for pensioners and employees have already agreed to the share of assets pensioners and disabled workers will receive from a court-supervised sale of Nortel operations.
They have also agreed not to seek a higher priority for pension promises if the company files for bankruptcy, and if the Bankruptcy and Insolvency Act is changed.
“Given those agreements, any legislation that improves priorities for pensions would have to be very specific to get around the existing settlement agreement (approved in court),” says a lawyer familiar with those agreeements.
The NDP-sponsored bill does not do that, nor is it intended to apply retroactively to pensions of companies that have already sought bankruptcy protection, says Rafferty.
Normally, a bill from a member of a minor party is given little hope. But Rafferty points out that the Conservatives have already voted in favour of the principle behind the bill.
“The Bloc, Liberals, and Conservatives … unanimously supported our Opposition Day motion from last June,” says Rafferty.
“That motion said Parliament should bring forward measures to protect workers such as ensuring that workers’ pension funds go to the front of the line of creditors in the event of bankruptcy proceedings. We’re just asking them to be consistent and support this bill, too.”
Liberal finance critic John McCallum (Markham-Unionville) says he and pension critic Judy Sgro (York West) will recommend the bill be sent to committee for discusssion, and possible amendment.
There were definitely legitimate arguments against making a retroactive change, as Nortel pensioners would have wanted, said McCallum. He also acknowledges other concerns that corporations and lenders will raise.
Any of the many companies with a pension plan that is short of fund might have to pay higher interest rates to borrow, or find it difficult to raise new capital.
This could hurt those companies’ ability to compete, and hasten the disappearance of traditional pension plans.
Meanwhile, buyers of corporate bonds, including other pension plans and individual investors, could lose money if corporate bonds fall in value.
McCallum doubts the Conservatives will support the bill. He notes Conservatives have not even supported a bill from Liberal Senator Art Eggleton that would provide protection for disabled employees, such as about 400 at Nortel who stand to lose about 85 per cent of their benefits starting next year.
“But,” asks McCallum, “if so many other countries do it (protect pensions in a bankruptcy or guarantee pensions), why can’t Canada?” He challenges critics of the NDP bill to provide proof.
Only Ontario has a Pension Benefits Guarantee Fund. It was designed to protect only the first $1,000 of benefits, and had recently had no money. The provincial budget revealed a $500 million grant was made to the fund, most of which will go toward Nortel pensions.
Rafferty notes that Australia improved the priority of pensions in a bankruptcy as recently as 2005, and a later study found there was little change in bond interest rates.
“So we have a real-life recent example,” he says, although fewer companies and pension would have been in as much trouble as are now, he acknowledges.
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