Wednesday, December 9, 2009

Proposed Canada pension reform to aid Nortel retirees

Bill c-51 being read by the Canadian government contains an amendment that would help provide priority to pensioners whose trust fund has suffered due to company bankruptcy. It would also give priority status to employees who lost promised severance payments. The text of the amendment can be found at The amendment to the bill was passed by the Senate National Finance Committee but still requires reading and agreement by the entire Senate.

The following is an article in today's Ottawa Citizen which addresses this effort and also the Ontario Provincial effort on pension reform.

Liberals in two places jump on pension reform

Ontario to spell out overhaul plans today, while federal party urges CPP changes to help those 'stranded' by bankrupt firms. By Jordana Huber, Andrew Mayeda and Bert Hill, Canwest News Service; The Ottawa CitizenDecember 9, 2009

With federal Finance Minister Jim Flaherty days away from a meeting in Whitehorse with his provincial counterparts to examine the country's pension system, the Liberals have moved first -- at Queen's Park and in Ottawa.

First, the Ontario government will introduce the first of two pieces of legislation to modernize the province's pension laws as early as today.

The legislation is expected to clarify the benefits of plan members affected by layoffs and corporate restructuring and to improve regulatory oversight.

Second, the federal Liberals joined the call Tuesday for reform with an expanded Canada Pension Plan capable of rescuing the plans of insolvent companies like Nortel Networks.

Ontario's pension laws have not seen major reform in more than 20 years and the changes will be based on recommendations made by former York University president Harry Arthurs, Finance Minister Dwight Duncan said last month.

In November, Duncan confirmed the first part of the legislation will not deal with the Ontario Pension Benefits Guarantee Fund.

The fund totals about $100 million and exists to provide workers stripped of their defined pensions with up to $1,000 per month, but has been woefully underfunded by corporations, critics say. The second part of the pension reform legislation is expected next year.

Meanwhile, the federal Liberals proposed several reforms to Canada's pension system Tuesday, including a "supplementary" Canada Pension Plan that would enable Canadians to sock away more of their savings in the national pension plan.

Under the proposals, the Liberals would create a Supplementary Canada Pension Plan.

Canadians could contribute to it on a voluntary basis. Employees currently make set contributions to the plan based on salary.

The party would also give employees whose pensions are "stranded" when their employer -- such as Nortel -- goes bankrupt, the option of rolling their corporate pensions into the Canada Pension Plan.

Now, if a company goes bankrupt, pension assets are converted into annuities, which can lead to major losses in the value of the pension during tough financial markets.

Third, the Liberals said they would give people on long-term disability status as preferred creditors during bankruptcy proceedings, so they stand a better chance of collecting their long-term disability benefits.

"Everywhere I go, Canadians are worried about pensions and security in retirement," Liberal leader Michael Ignatieff said after announcing the proposals. "This is not going to solve the pension crisis, but it's a good start."

Nortel pensioners and former employees welcomed the federal Liberal proposals. While they said they didn't go far enough, they said that it showed more political parties were getting involved in the issue.

"We embrace any changes that might prevent the pension plan from being wound up and our members taking a haircut of 30 per cent to 40 per cent to their benefits," said Tony Marsh, a spokesman for the 5,000-member Nortel Retirees and Former Employees Protection Canada lobby group.

"We need something to buy a little more time. This is really a federal and provincial issue and hopefully they will act together rather than propose policy changes."

He said the federal Liberal proposals could still mean significant reductions in pension benefits if, as it appears, they didn't include a guaranteed share of proceeds from the sale of Nortel assets.

With the auction of Nortel assets nearing an end, with just $3 billion raised so far from divisions that $8.5 billion in sales last year, time is working against the Nortel pensioners.

"We have been talking to the federal government but we are still waiting for answers," said Don Sproule, national chairman of the protection group.

The federal Liberal announcement comes as the party, which has been foundering in the polls, strives to stake out positions on key issues following a shakeup in Ignatieff's office. Liberal Senator Art Eggleton revealed Tuesday that he planned to table legislation in the Senate that would enable employees on long-term disability to become preferred creditors.

According to some estimates, only about one-third of Canadian households are saving enough to cover their basic expenses in retirement.

The premiers of Alberta, British Columbia and Saskatchewan have all supported the notion of a supplementary CPP.

In October, Flaherty announced a series of reforms, including a restriction on the ability of federally regulated employers to defer making contributions to their pension plans. The government has also pledged to hold bigger pension surpluses for a rainy day. Currently, plan sponsors can hold surpluses up to 10 per cent of liabilities, but that threshold will be raised to 25 per cent.

The government has commissioned a study by University of Calgary economist Jack Mintz on the subject, and the results are expected to be presented at the Whitehorse meeting, which begins Dec. 17.

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