Given that workers and retirees worked decades to earn their pensions, they should not be left at the back of the line.
Ottawa (19 Dec. 2018) — In a submission to the federal government’s consultations on enhancing retirement security, the National Union of Public and General Employees (NUPGE) called on the federal government to make protection of pensions a priority in insolvency proceedings.
The federal government called the consultations in response to high profile corporate bankruptcies and insolvencies where workers and retirees saw deep cuts to their pensions as a result of pension plans being left under-funded. In many cases, at the same time that pension plans were left underfunded, millions of dollars were being paid out in dividends or executive bonuses.
Amendments needed to federal legislation on bankruptcy, insolvency
2 pieces of legislation — the Bankruptcy and Insolvency Act (BIA) and Companies’ Creditors Arrangement Act (CCAA) — need to be amended to give workers and retirees priority in bankruptcy proceedings and corporate restructurings. Currently workers and retirees in a pension plan with a deficit are treated as unsecured creditors. This means they are at the back of the line when a company is insolvent. A similar situation exists with funding for benefits.
Like other unions, NUPGE is calling for workers and retirees to be given priority. Giving workers and retirees priority recognizes that pensions are deferred earnings. Given that workers and retirees worked decades to earn their pensions, they should not be left at the back of the line.
Current legislation allows executive bonuses and dividend increases when pension plan in deficit
The Sears Canada bankruptcy shows what is wrong with how existing insolvency laws treat pension deficits. In the 8 years before Sears went under $1.4 billion was paid to Sears Canada shareholders. Even after the company went bankrupt, senior managers were paid $9.2 million in retention bonuses. Money paid in dividends and bonuses would have covered the pension deficit and possibly even allowed for the changes needed to keep the company going.
Timing of consultations worrying
While it is good that the federal government is holding consultations as a result of the appalling way workers and retirees are treated under current law, there is good reason to be concerned that nothing will change — or that things will get worse.
The consultations were announced in February in the 2018 federal budget, but the consultations did not start until shortly before Christmas. Holding consultations in the run-up to Christmas doesn’t encourage people to participate. Allowing only 30 days for comments also reduces the ability of workers and retirees to comment.
Assumptions in consultation document ignore many issues
There is also reason to be concerned about some of the assumptions in the consultation document. Contrary to what the document claims, the current retirement income system isn’t meeting the needs of Canadians. That’s why the number of seniors using foodbanks is increasing.
Issues not addressed in the consultation document include the drop in the percentage of private- sector workers with pension plans and the fact that many low- and middle- income Canadians can’t afford other ways to save for retirement, like RRSPs. The limitations of the consultation document are why NUPGE focused on the need to change insolvency laws in its submission.
Mentioning that there is no consensus on changing insolvency law to protect pensioners and retirees is also worrying. Under current insolvency laws, money that should be going to pension plans is going into the pockets of well-heeled shareholders and senior executives. When some wealthy individuals are profiting from the status quo, they are not going to want better protection for pensions.