Advocates for Bill C-228 argue against myths perpetrated by those who want to protect the status quo with respect to insolvency legislation.
Fact: Super-priority CAN be implemented without impacting the capital markets.
While critics have argued that extending super-priority will limit access to capital and increase borrowing costs, these predictions have not materialized in other instances. The Insolvency Institute of Canada testified in 2005 at Committee hearings on C-55 (the Wage Earner Protection Program) that extending super-priority would result in: “a significant negative impact on Canadian productivity and employment since businesses, will have a tougher time getting financing, and their costs could rise dramatically.” Parliament discounted this argument and prioritized individual workers, passing WEPP on November 25, 2005. Parliament should act consistently with respect to pensioners. WEPP impacted every company that could file for insolvency, C-228 impacts the small percentage that have single employer defined benefit pension plans.
Fact: Super-priority will not reduce the number of new defined benefit pensions. Private, single-employer defined benefit pension plans have been declining for years. With a work environment that sees people moving from job to job over their careers, a pension that requires employment at the same company for thirty years or more is unrealistic. There have been no new defined benefit pension plans established in Canada in over 20 years.
FACT: Action, not consultation, is long overdue: Consultation is a stall tactic used by the insolvency sector, bankers and lawyers to maintain the status quo. Stalling doesn’t serve the interests of Canadians. It simply elevates the risks to the 4.3 M Canadians who rely on DB pensions for their retirement security.
FACT: Canada lags behind OECD countries in pension protection. Other OECD countries, including the US, the UK, and Australia, all provide significantly superior pension protection for their seniors. In Canada, with a complex federal-provincial pension and insolvency regime involving 11 jurisdictions, super-priority is our best tool to protect pensioners.
FACT: Corporate behaviour can change. At the time of its insolvency in 2003, Air Canada had a $1.3 billion pension deficit. By 2013 Air Canada’s pension deficit ballooned to $4.2 billion. Then Finance Minister Jim Flaherty agreed to relief, subject to restrictions until Air Canada’s pension was fully funded. Executive compensation increases were capped, special bonuses were prohibited, and other incentive plans were severely curtailed. The airline was also prevented from paying dividends and buying back stock. With these restrictions in place, Air Canada managed to fully fund the pension by May 2015.
Previous successful restructurings, such as Stelco, are given as examples that would have failed if the new owner had to deal with a pension deficit. The fundamental assumption here is that corporate behaviour is immutable, that the company would make the same decisions regardless of changes in the regulatory environment. This is false logic. If true, no progress would ever be made.