NRGO Committee Meeting

STANDING COMMITTEE ON NATURAL RESOURCES AND GOVERNMENT OPERATIONS

COMITÉ PERMANENT DES RESSOURCES NATURELLES ET DES OPÉRATIONS GOUVERNEMENTALES

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, May 5, 1999

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[English]

The Chairman (Mr. Brent St. Denis (Algoma—Manitoulin, Lib.)): I'd like to call to order this Wednesday, May 5, 1999, meeting of the Standing Committee on Natural Resources and Government Operations. We are continuing our study of Bill C-78, cited as the Public Sector Pension Investment Board Act.

We're pleased to welcome to the committee, from the Professional Institute of the Public Service of Canada, Steven Hindle, president, and Rudy Loiselle, pension and benefits adviser; and from the Social Science Employees Association, William Krause, president, Claude Danik, research officer, and Walter Kelm, consultant.

Thank you for appearing today to assist us in gaining a better appreciation of Bill C-78. I'm sure the clerk has asked that each group make a presentation of five or ten minutes, allowing members the opportunity to ask questions.

We'll go in the order in which you're listed on the notice.

Mr. Hindle, I presume you'll be speaking for PIPS. I invite you to commence.

Mr. Steve Hindle (President, Professional Institute of the Public Service of Canada): Thank you, Mr. Chairman.

The Professional Institute of the Public Service takes this short window of opportunity to bring forward comments on Bill C-78. We've already expressed publicly that this dense and complex 200-page piece of legislation requires more than four hours of public debate.

Our intervention today will focus on the amendments that would address the serious concerns our membership has with this bill. Let me remind you that this bill will affect the retirement funds of some 670,000 public service employees, including the Canadian Armed Forces and the Royal Canadian Mounted Police.

The institute recognizes that some of the changes proposed in Bill C-78 and Bill C-71, the Budget Implementation Act, 1999, as well as some administrative changes may entail positive repercussions for public service employees and pensioners—for example, changing the benefit formula to the average salary during the best consecutive five years of service instead of six; modifying the CPP/QPP integration formula to match the new benefit formula; enhancing the supplementary death benefit; extending the survivor benefits to conjugal partners of the same sex; introducing the market investment of plan assets; and implementing a dental plan for pensioners. However, the dollar value of these improvements pales in comparison with the $30 billion surplus in the current plans.

The institute is particularly incensed by the manner in which the government proposes to commandeer the $30 billion surplus currently attributable to the public service pension plans. Secondly, the institute is profoundly concerned that the new plan does not provide for a joint management board.

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Experts warn that this legislation could set a dangerous precedent that would encourage public and private employers to lobby for changes that would allow them to appropriate pension surpluses. As members of Parliament, how will you deal with the pressure from the private sector when they want you to change the laws so they can have unfettered access to the surplus in the pension fund of their employees?

In terms of consultation with employees, I'm going to skip right to the recommendation in this section, Mr. Chairman.

The institute calls upon the government to fulfil its long-standing promise to place the public service pension plans under a true system of joint management.

Clause 90 of Bill C-78 reads, in part, as follows:

There is established a committee, to be known as the Public Service Pension Advisory Committee... to advise and assist the Minister

We recommend it be amended to read:

There is established a Public Service Pension Management Board, comprised of employee, employer and pension representatives, which is responsible for designing the plan, its funding, managing the surplus or deficit, its administration, as well as for ensuring the funding level is adequate to deliver the pension benefits.

Moving on to Canadian legislation, in 1992, the then president of the Treasury Board board stated:

...the government has every intention of complying with its own rules and that it is not taking advantage of its unique position as a non-taxing employer and the maker of the rules.

On many occasions since then, the Honourable Marcel Massé has publicly stated that he was of the same view. We find such comments ironic given that the government has continually delayed the process of bringing the PSSA into compliance with the Pension Benefits Standards Act. Bill C-78 does not make provision for compliance with the Pension Benefits Standards Act.

The Pension Benefits Standards Act, 1985, as amended by Bill S-3, currently applies to all federally regulated employment except employment by “Her Majesty in right of Canada”.

Public service employees do not want to be a privileged or a disadvantaged class of Canadian society. They want only the same rights and privileges as other Canadian citizens.

The institute recommends that the government modify the Public Service Superannuation Act to clearly state that it is subject to the Pension Benefits Standards Act and to modify the PSSA to ensure such compliance. Modifications should apply to the current PSSA and the PSSA as amended by Bill C-78.

Furthermore, the Pension Benefits Standards Act should be modified to repeal subsections 4(5) and (6), which exempt employment by “Her Majesty in right of Canada”.

Moving on to the Income Tax Act, proposed subsection 71(1) of the PSSA provides that:

The Governor in Council may, for the purpose of enabling the pension plan provided by this Act to conform with any provision of section 147.1 of the Income Tax Act and Part LXXXV of the Income Tax Regulations, make regulations

in order to make it comply.

As previously stated, federal public service employees do not seek preferential treatment. They simply want to be subject to the same laws as other Canadians.

It's our recommendation that proposed subsection 71(1) of the PSSA be modified to state:

The Governor in Council shall, for the purpose of enabling the pension plan provided by this Act to conform with any provision of section 147.1 of the Income Tax Act and Part LXXXV of the Income Tax Regulations, make regulations

Now let's talk about a contentious issue. Clause 95 of Bill C-78 provides that the minister may withdraw any PSSA surplus that exceeds 110% of the estimated liabilities of the plan and must withdraw all the current excess PSSA surplus. This withdrawal must take place over a period not exceeding 15 years.

Current provincial and federal pension legislation, upheld by the courts, does not permit the unilateral withdrawal of a surplus from any type of pension plan. It is important to note that neither the source nor cause of the surplus are germane when dealing with the legislative restrictions imposed on “refund of surplus to the employer”.

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Section 9.2 of the Pension Benefits Standards Act, 1985, as amended by Bill S-3, addresses the issue of refund of surplus to the employer as follows:

(1) If an actuarial report filed under subsection 12(3) indicates that there is a surplus, no part of that surplus may be refunded to the employer unless

(a) the employer establishes that it is entitled to the surplus, or part of it, under the pension plan or this section;

(b) the requirement of the regulations made under paragraph 39(h.1) are met; and

(c) the superintendent consents to the refund.

Entitlement to surplus

(2) An employer is entitled to the surplus, or part of it, if after being notified of the employer's proposal for a refund of that surplus or part of it, as least two thirds of the persons in each of the following categories notify the employer that they consent to the proposal:

(a) members of the pension plan

(b) former members of the plan and any other persons within a prescribed class.

It is incomprehensible that the government would legislate standards for the refund of surplus to the employer in order to protect plan members and then proceed to exempt themselves from such minimum standards. Federal public service employees deserve the same protection under the law as other federally regulated employees.

The institute recommends that the Public Service Superannuation Act be subject to the Pension Benefits Standards Act, and more specifically, that section 44 of the PSSA be amended to reflect the PBSA restrictions on the withdrawal of plan surplus by the employer.

In conclusion, the 1990s have been very difficult years for public service employees. We have seen our rights eroded one after the other. Members of Parliament have adopted piece of legislation after piece of legislation to stifle the rights of public service employees.

Some examples include: wage freeze during almost six years in the early 1990s; suspension of access to binding arbitration, the only mechanism available to resolve an impasse at the bargaining table other than the strike route; back-to-work legislation coupled with legislated collective agreements; and now this legislation, which will allow the government to commandeer the $30 billion surplus in the pension fund, generated in large part by prolonged wage freezes.

The pension plan is an important aspect of the employee-employer partnership and part of the total compensation package for service performed. For all of us, our pension fund is a sacred trust. A pension is the fruit of many years of labour and commitment to an employer.

We ask that you reconsider this piece of legislation out of fairness to ensure that federal public service employees are subject to laws and enjoy the same protection as their fellow Canadian citizens.

Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Hindle.

We'll turn to Mr. Krause.

I invite you to commence, please.

Mr. William Krause (President, Social Science Employees Association): Thank you, Mr. St. Denis.

The Social Science Employees Association is a bargaining agent representing over 5,900 professional employees in the federal jurisdiction. For some time now, and more so since the tabling of Bill C-78 in the House of Commons, our members have expressed serious concerns regarding the direction taken by the government with respect to public sector pensions.

Now, normally I would have had the opportunity to submit a full brief on this matter to the committee. However, it was deemed appropriate by the leader of the government in the House of Commons to give notice of time allocation on April 23. As a consequence, we didn't have sufficient time to prepare a submission. Instead, we have presented to the committee a letter summarizing our views.

Our first concern is that Bill C-78, in content and process, represents bad public policy. We have four reasons.

First, Bill C-78 is proceeding through the legislative process without debate or committee discussion commensurate with the complexities and importance of the bill. Retiree communities across the country, members of our armed forces, and government employees are not being afforded sufficient time to study the bill, identify areas of concern, and suggest through public meetings improvements in the legislation. This is simply an abuse of power and a theft of our democratic process.

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By way of contrast, recent amendments to the Pension Benefits Standards Act required a legislative process lasting over two years, with opportunity for stakeholders to comment extensively and provide briefs reflecting in-depth review and analysis. This is how the federal government regulates other employers, while here the government is exempting itself from thorough legislative review.

Second, with respect to the content of Bill C-78, it will effectively give the government control of a $30 billion pension surplus. However, as the country's largest employer, and as the legislator who regulates other private pension plans by law, actions taken by the federal government usually create a corresponding demand from other Canadian employers for comparable treatment of benefit.

This bill will inevitably provide the justification for fiscally conscious provincial governments to tap into the pension plans of their employees. In the end, one will lose any reasoned arguments to deny private sector employers access to employee pension funds.

Third, the bill allows the surplus in the new pension plan to be used as part of the government's general revenues. From a standpoint of fiscal accountabilities and controls, we do not believe it advisable or prudent that moneys collected from employees for a specific purpose be used for other expenditures.

As the government, through Treasury Board ministers, will have the authority to determine both contributions and benefits in the new pension plan, and consequently affect the size of the surplus, this legislation could effectively be used as an employment tax on government employees, RCMP officers, and members of our Canadian Armed Forces.

As well, the new authorities of Treasury Board ministers would supplant review by Parliament. Currently, Parliament must be consulted on changes to both contributions and benefits. Consequently, under Bill C-78, the role of the government as revenue collector may come in conflict with its fiduciary responsibility as pension plan administrator.

Fourth, in principle, any surplus in a pension plan is extremely important as a cushion to protect against underfunding, market corrections, unforeseen demographic changes, and errors in investment strategy. The confiscation of the existing $30 billion surplus by the government, and its authority under the new pension arrangements to further seize plan surpluses, is unwise and potentially harmful to these plans. It places the long-term viability of these plans at risk to short-term fiscal objectives.

Furthermore, a surplus is essential for benefit improvements that protect our seniors from poverty in the future. The confiscation of surplus places our seniors at increased financial risk and creates additional strain on our social safety net.

Our second major concern is that Bill C-78 is based on misleading assumptions and half-truths. The president of the Treasury Board, Marcel Massé, has suggested on many occasions that the surplus in the pension plan belongs to taxpayers, as they would have been obligated to fund any shortfall in the plan.

Clearly there is no such expressed obligation in the current plan or in that proposed by the government. In addition, history shows a completely different picture.

In the 1950s, when faced with a plan shortfall, the government of the day moved to increase contributions from 6% to 10%. When rates subsided, they were left permanently higher at 6.5%. When indexation was introduced into the plan, employee premiums increased by 1%. During the period of the anti-inflation program, the government acted to restrict the indexation of pensions.

Clearly, the evidence suggests that when faced with a financial shortfall in its pension plans, the government has acted repeatedly to increase premiums or decrease benefits as opposed to letting taxpayers fund the shortfall. Any and all improvements have been paid by employees, including indexation.

Mr. Massé has carefully explained how the government is effectively now paying some 70% of the premiums going into the plan, and how this legislation will allow the amount of the employer contribution to decline to a more appropriate level of 60%.

Since 1996 the government has stopped crediting the plan in accordance with legislation. As well, in 1998 the government failed to credit full interest in accordance with the law.

The SSEA, together with other labour unions, an armed forces retiree association, and an RCMP association have taken court action to have the pension account properly credited. The amount outstanding or in default has grown to approximately $11 billion. It is indeed an outrage that the largest amortization of pension surplus, at almost $5.9 billion, has come from the plan of the poorly paid members of our Canadian Armed Forces.

From its own public accounts as tabled in Parliament, since 1996 the government has not credited a single penny of Canadian taxpayer money to any of its pension plans. All contributions have come from federal public service employees, RCMP officers, and our armed forces.

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Currently the rate of contribution is 0% for the employer and 100% for employees. Should Bill C-78 be enacted, we may expect the government to write down the surplus for the next dozen years and make no net contribution to any of its employee pension plans.

This effective contribution rate is in sharp contrast with the private sector, where 50% of employees belonging to employer-sponsored plans have their pension premiums paid fully, 100%, by their employer. Those private sector employees who contribute to a pension plan rarely pay more than 25%.

Our third and final point is that government employees and all Canadians deserve equal treatment.

It would seem abundantly clear that Bill C-78, by virtue of its accelerated legal process, and by virtue of its misleading and inaccurate assumptions, is a piece of legislation designed to quickly and silently grab $30 billion. In some ways, it's been fed by the popular dislike of government employees by the rest of Canada, a divisive construct used by the government.

Legislation should be based upon principles that bring Canadians together, where common values, principles, and laws afford both equal benefit and protection. Across Canada, for over a decade, there has been a trend to give employees greater control over their pension plans and associated surpluses. Bill C-78 goes in exactly the opposite direction, increasing employee contributions while giving the employer exclusive control over pension surpluses.

For our members, we ask that they not be afforded special treatment or special benefit. We want employees of the federal government to have the same treatment as other Canadians who are members of private pension plans.

Consequently, the current bill is unacceptable. However, if the government is intent upon this legislation, we would hope that the committee would consider the following set of recommendations.

Recommendation 1: Bill C-78 should be amended so that contributor and retiree consent is required for the withdrawal of surpluses while any plan is ongoing. Alternatively, we recommend that Bill C-78 be amended so that the act and its regulations are consistent with the provisions regarding surplus withdrawal as set out in the Pension Benefits Standards Act.

Recommendation 2: Amend Bill C-78 so that the act and its regulations are consistent with the Income Tax Act regarding the use of surplus by an employer.

Recommendation 3: Make the advisory boards true management boards that function as plan administrators and have broad stakeholder participation.

Recommendation 4: Make the existing and future surpluses in the plans and decisions regarding contribution holidays subject to administration by the proposed management boards.

The recommendations, taken together, are designed for one purpose—to ensure that public service employees, members of the RCMP, and members of the armed forces are treated no differently from every other Canadian contributing to a pension plan. SSEA asks for fairness, not special treatment.

Thank you.

The Chairman: Thank you, Mr. Krause, for that.

We're going to turn to Dave Chatters to start the ball rolling.

Mr. David Chatters (Athabasca, Ref.): Thank you, Mr. Chairman.

I thank the witnesses for coming forward and discussing their concerns with the bill. I have a number of areas I'd like them to respond to.

First of all, you raised a question both I and a number of my colleagues have raised. In your view, is there any reason this bill needs to be rushed through as quickly as it seems to be rushing through? We appear to be heading toward a final vote in the House of Commons later this month, and it seems to me this is rushed.

What could you do better than what's now being done if you had more time?

I'll maybe go through these, and then you can answer the questions.

I haven't heard any of the witnesses raise the issue that if what's being done under this legislation was done in any private sector pension plan in the country, it would be illegal, or the issue of the government giving the minister such broad powers to change the terms of this pension plan without even the small protection that public debate in this committee and the House of Commons provides. These changes need not even come back to the committee or to the House for changes. That concerns me, and yet no one seems to have raised that.

Third, do you have any great objection to the concept of leaving the $30 billion in the plan to provide a cushion for possible future deficits? We heard yesterday from the actuaries that this is in fact a real possibility down the road.

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Lastly, this issue around conjugal relationships really blows my mind, that anybody would base their right to survivor benefits on a conjugal relationship.

In your view, does that mean somehow there has to be sex police, or a test to prove that the relationship remains conjugal? Does it really mean any dependent relationship between two individuals where the pension participator simply names a dependent person as their survivor, or does it mean they're actually going to live up to this test somehow for a conjugal relationship?

I think those would be my questions, Mr. Chair.

Mr. Steve Hindle: Is the legislation being rushed? Yes. There's no doubt about that. From our point of view, we can see no reason for it. There is no crisis in this pension plan.

As much as we would like to move the public service pension plan onto a much more private sector footing in terms of real money management and investments, we don't see that there is a need to rush it at this time.

With more time, what would we do? We could continue the discussions that had a certain amount of merit during the last year, when we discussed the management board and the structure of the new plan. We could continue the discussions that were going on at that point without the threat of legislation ending the discussions, as we're faced with now.

We did not directly raise the question of the minister's future powers, but the proposed recommendations we make address that by putting it under the Pension Benefits Standards Act and under the limits of the Income Tax Act. That would effectively put the board of management under the same rules as currently apply to private sector pension plans, and would address it in that manner.

The surplus could certainly stay in the current plan. As I indicated before, there's still plenty of room to have a discussion as to what's the appropriate use of that surplus and what type of cushion pensioners need to ensure that they do not experience a detrimental effect on their living standard.

On the question of conjugal relationships, I will give the government credit for moving in this direction in terms of ensuring that same-sex couples have the same access to benefits that heterosexual couples have.

I understand the concern about “sex police”, as it's been referred to. I don't think we're going to get into that situation. The only time it would come up is if somebody questioned the relationship.

It is, from my point of view, a political way of getting around putting in same-sex relationships and moving further toward same-sex marriages than the government is comfortable with going at this point. I think it strikes the appropriate balance between the government's legal obligations to people as people, as well as its political obligations, and trying to ensure that it's not too much of a minefield.

Mr. David Chatters: Are you saying that in the part where it refers to the conjugal relationship, that is in fact what it means, and that somehow it has to either be proven or assumed to be a conjugal or same-sex relationship rather than simply a dependency relationship?

Mr. Steven Hindle: I'm under the impression that it would be assumed the same way it's assumed for common-law heterosexual couples. There is no requirement for them to prove a conjugal relationship, and I see no reason to require same-sex couples to prove it. I believe it is aimed directly at that particular problem in the current legislation.

Mr. David Chatters: Thank you, Mr. Chair.

The Chairman: I have Pierrette next.

Mr. William Krause: Could I respond to the question, please?

The Chairman: Oh, yes. I'm sorry. Go ahead, Mr. Krause.

Mr. William Krause: Thank you very much.

Certainly this bill is being rushed. As we indicated in our letter, when equally comprehensive legislation regarding the Pension Benefits Standards Act was introduced, it took two years.

Clearly there is no crisis in this plan. After all, it has a $30 billion surplus. There is no financial crisis. There's no need to rush.

I think we're all reasonably intelligent people. We can appreciate why the government is rushing—to try to confiscate as quickly as it can the $30 billion surplus in the plan.

Would it be illegal in the private sector? Of course it would be illegal. That's why our association has already taken out two court actions against the government. We're pursuing those actions and will pursue them even if this legislation is passed. There are charter issues at stake here that we have researched and that are very credible.

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With respect to the minister's powers, I think Mr. Hindle's comments are very good about the fact that the PBSA and Income Tax Act regulations, if they were made to apply, would be a curb on the power, but as legislation currently exists, these ministers can, in essence, determine the premium, determine the benefit. They can create the surpluses artificially, as they would like, and then siphon off the general revenues.

In essence, they can start taxing government employees, members of our armed forces, and our RCMP. We don't like that very much. It's taxation, in essence, though quite disguised.

About keeping the surplus in the plan, we're very reasonable on this point. We want to see a healthy and vibrant plan.

I made the point in my brief, although perhaps I could have made it more forcefully, that a surplus in a plan is a hedge to protect our elderly citizens from poverty in the future. There are currently about 40,000 to 50,000 widowers and widows in this plan, and they receive, on average, a monthly payment of only $650.

I think some surplus should go towards them. They're not my members, but I'd like to see them taken care of. I believe we have a responsibility to do that.

So keeping the surplus in the plan is a protection for those who would be otherwise made poor over the passage of time. I think we have to consider that seriously.

On the issue of conjugal relationships, it could have been said differently. We support the benefits going to same-sex couples. I think there are devices for achieving that other than referring to a “conjugal relationship”. If you present or represent somebody as your spouse, then for all intents and purposes they are, as far as I'm concerned.

Perhaps it wasn't necessary to go into that area and suggest the conjugal relationship. There might have been other language equally appropriate to give benefits of the same-sex variety.

So, yes, that could have happened with different language.

Mr. David Chatters: Further to that, this $30 billion, of course, is certainly relevant. At least on the books, it exists today.

On the issue of a surplus, if this pension investment board really works as well as it should, the possibility for future substantial surpluses will be there. This whole argument of what you do with that surplus certainly is relevant, then, to what happens down the road as well, is it not?

Mr. William Krause: Can I take that one?

On the investment issue, I have some concerns. These flow from comments that Alan Greenspan, the head of the FED in the States, made recently. He was commenting on the use of social security services being invested in private equity markets by boards.

His concern, of course, is that the government would appoint the people to sit on those boards. He felt that by having a group of people who are political appointees making economic decisions on investment, we would get a less-than-efficient allocation of equity in those markets, and the returns would not be the normal type of equity returns one would expect. They would invariably be poor. And that was the experience.

With the current arrangement, my concern is that all the members of the board will be appointed by the government, and the government has exclusive power and control over everything. The stakeholders, such as retirees and unions, aren't involved, either as the management board or overviewing the decisions of those people charged with the investment strategy.

So I have a concern with that issue as well, about the magnitude of surpluses we might receive. I think they'd be less than they'd be under normal circumstances.

The Chairman: Okay, Dave, thank you.

Pierrette, then Ben.

[Translation]

Ms. Pierrette Venne (Saint-Bruno—Saint-Hubert, BQ): Good afternoon, gentlemen.

Like you, I am sorry that we have so little time to study this Bill. You know we will report to the House next Tuesday, and that we will perhaps even have third reading the same day, which means that everything will be over by next week. This shows that the dies are loaded and that, even though you are here today to express your opinion, the government won't give a hoot about what you're about to tell us, since everything is already said and done.

This being so, I would still like to understand your recommendations. I will especially ask Mr. Krause, of the Social Science Employees Association, about his third recommendation dealing with management boards.

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Could you tell us exactly the meaning of that recommendation, which is rather succinct? What do you mean exactly when you talk about advisory boards and management boards?

[English]

Mr. William Krause: We would like to have the fundamental management of the plan under the control of the management board. The management board we envision would have representation from the employer, unions, and retirees. We would have all the important stakeholders involved. They would be trusted with overviewing the management of the plan, determining benefits, determining contribution rates, and managing the funds and surpluses in those plans.

In a way, they would take over those powers we are giving to Treasury Board ministers. I believe giving those powers to the government of the day is clearly a mistake.

We have proposed that the so-called advisory council that's in the legislation be made a management board; that the management board have full participation from all stakeholders, including retirees and all unions and employees, and of course the employer; and that they basically exercise the authorities you would have given to Treasury Board ministers regarding this legislation.

We think with that in place, with all stakeholders, and with the other changes we have proposed—changes of consistency with both the Income Tax Act and the Pension Benefits Standards Act—it would create a global framework under which this plan could function, and function well, and not be abused.

[Translation]

Mr. Claude Danik (Research Officer, Social Science Employees Association): I would like to add a few words to Mr. Krause's answer. The basic principle that we would like the government to recognize is that when people put their money in an account, they should have the right to decide what will happen to that money. The people who contribute to a pension fund must have the right to be represented at the management board.

Ms. Pierrette Venne: What about retirees who have contributed in the past but who are not in the system any more? There might be a reduction of contributions for present-day workers but, in that case, the retirees might want to have some compensation. What is your position on that?

Mr. Claude Danik: You want to know what I think about retirees being represented at the board?

Ms. Pierrette Venne: Yes, and what you think of their present position. They want to be compensated. The Bill will probably be passed as is. As things go these days, there will probably not be too many amendments from the government. So, the government will get the right unilaterally to reduce the contributions of the employer or of the employees. Our retirees have already asked for compensation. What do you think of that?

[English]

Mr. William Krause: We believe retirees should receive compensation. What we have proposed, of course, is maintaining a solid surplus in the plan that permits retirees to receive an improvement in their benefits.

The experience we see that concerns us is that normally the survivors in these plans, the spouses of the employees, receive only about 50% of the employee benefit when that individual has passed on. In fact, that's probably a crime to some extent, because that 50% was established back in 1947 and hasn't been looked at since. One of the problems we have is that the widows and widowers are currently receiving an amount of, on average, about $650 a month, which is insufficient to live on.

So that's our concern. We believe the retirees should be involved very heavily. That's why our fourth recommendation says it's the plan administrators—i.e., the board—that would determine surpluses in the new plans as well as the contribution holidays. Retirees would sit on those boards and vote.

So I think they should be involved in that way. I think any board, to operate prudently and reasonably, is going to have to consider those who are at most risk and least able to look after themselves and whose pensions are being eroded over time. That obviously is the retiree community. We're very concerned about them.

Mr. Walter Kelm (Consultant, Social Science Employees Association): Perhaps I could just add to that.

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One thing that could be considered is what is common in the private sector—that is, if they have more money than is needed, to give an ad hoc increase to pensioners. If we have so much money, say, we can afford a 3% or 5% increase in benefits, and then award retirees an increase, depending on the size of the surplus. That's done quite commonly in the private sector.

[Translation]

Ms. Pierrette Venne: Thank you.

My other question is to the members of the Professional Institute of the Public Service. In your recommendation at page 9, you say that:

The Institute recommends that the PSSA be subject to the PBSA and more specifically that section 44 of the PSSA be amended to reflect the PBSA restrictions...

This recommendation is so complex that I would like you to explain it to me. What do you mean exactly?

[English]

Mr. Steve Hindle: As we explained, the Pension Benefits Standards Act has some tests an employer would have to meet before they could withdraw any or all of the surplus from the plan. From our point of view, one of the most important tests covered in the Pension Benefits Standards Act includes the requirements, in an employer proposal to withdraw a surplus or any part of it, that it go to the people who are in the plan, who are currently members contributing to the plan, and those who have retired and are receiving payments from the plan; and that two-thirds of the members in each of those classes consent to the removal of the surplus.

This ensures that the money that has been put aside as deferred wages for people before they retire, and that's being used for people who have retired, is sufficient, and that they have an opportunity to have some say over the management of the investments and of the money in the plan. They would have to be convinced that it was not detrimental to their own fiscal well-being to allow the employer to withdraw the surplus.

That's the thrust of that proposed amendment.

[Translation]

Ms. Pierrette Venne: Thank you.

[English]

The Chairman: Thank you, Pierrette.

Benoît, please.

Mr. Benoît Serré (Timiskaming—Cochrane, Lib.): I will be very short, Mr. Chairman. I have just a little comment.

I want to draw it to the attention of the committee, and specifically our witnesses, that the New Democratic Party, which pretends to be the great defender of unions and workers in this country, did not see this bill as being important enough to send even one member to this meeting.

The Chairman: You're on the record, but you shouldn't have been.

David.

Mr. David Price (Compton—Stanstead, PC): I guess I'll start with Mr. Krause.

In your presentation, you say:

Fourth, in principle, any surplus in a pension plan is extremely important as a cushion to protect against underfunding.

I think you're perfectly right there.

The argument we've seen used by the minister over the last several days is that they had this huge deficit and they filled in the deficit over those years.

I think what he's talking about is that they've supposedly put in between $10 billion and $14 billion—these are the figures we have, anyway—to balance that supposed debt; well, we'll say “deficit”, since that's what he's been saying. We wouldn't want to call him a...

At any rate, would you agree, in that case, that he'd have access to that amount and no other amount, and the balance of the $30 billion remain in there as the cushion?

Mr. William Krause: First of all, if there was a deficit in the plan, I'm not aware of it. That's one issue. So I take some exception to that.

Second, that deficit might have been created by the government itself in the way it managed the moneys in the plan. There is evidence to suggest that. I'll defer in a few moments to Walter, who has something more specific on that issue.

Third, they've already taken $11 billion out of that plan. They wouldn't admit to that, but they're going to have to do it in court sooner or later. That's where we'll probably meet them on that issue.

Again, I think Mr. Massé is not giving the complete truth on this particular issue, and I think the information is misleading. I do not see any $14 billion put into this plan.

Walter has a comment.

• 1615

Mr. David Price: But just in passing, those are the particular figures we have. I'm the defence critic, so I follow the military, and I know—

Mr. David Chatters: You're not in the House now.

Mr. David Price: —the military has never had a deficit, straight through. Nothing should be touched in that part of it.

But I realize this is a pot, so we have the whole package in here.

Mr. William Krause: I understand.

Mr. David Price: That goes with the figures we have heard. But even if these were...

[Editor's Note: Technical Difficulty]

...let's just put it that way. Hypothetically, at least, in that case, we could say, okay, if you really have put in that extra money to cover it. The balance, though, should not be touched, because that definitely is part of it.

Mr. William Krause: I have always believed that retirees in this country, unionists, and government could sit down together in a rational way and have a discussion about how to divide this up in a reasonable manner such that we wouldn't be wrangling in court or doing other things.

I also believe one of the problems we have is that we've gone ahead with a complex piece of legislation to grab some money. Back at the very beginning we should have had broad stakeholder meetings to ask ourselves very simple questions: How do we want this plan to work to provide for the retirement years of our elderly? How should we deal with the issues of poverty for retirees and their surviving spouses?

Had we had that public discussion first we might have been able to come to a better understanding of what this plan should be and how it should function. Unfortunately, the government has not done any of that and has moved ahead to just grab some money. We've missed some important dialogue in the process, unfortunately.

I'd like Walter to make a comment on that issue about the deficit in the plan. Walter goes back a long way and he is probably the best pension expert on this plan.

Mr. Walter Kelm: I should just add that I was once director of pensions and benefits for the Treasury Board, so not so long ago I was on the other side.

First of all, the so-called deficit figure keeps changing, but the thing to keep in mind is what the minister has said, that over the years the government has put in 60¢ for every 40¢ put in by employees—in other words, $1.50 for each $1 put in by employees. That includes any deficit... and I'm not sure what deficit figure they're using this week. So that figure is included in the 60¢/40¢.

Bear in mind that the government has, over the years, put in $1.50 for every $1 put in by employees. According to Statistics Canada, in the private sector, on average—and I underline average—private employers have been putting in $3 for every $1. So even when you take that into account, the government is only halfway up to the average for the private sector.

The final point is that when you look at the deficit, you have to ask yourself why there is a deficit. Well, the law now provides that the government determines the interest rate on the money it borrows from pensioners, so it's given itself a real bargain on the borrowing side. The figures indicated by the minister and that he put out in February indicate that because of the way they've been treating employee money, pension costs have been 15% to 20% higher for each percentage point. Public servants have been losing out.

The government had a study done for it in the 1980s by William M. Mercer Limited, and the Auditor General carried out a study. They indicate that had the government not put itself above the law regarding how you treat pension funds, public sector pension plans would have earned between 1% and 2.5% more than they've actually earned.

In other words, taxpayers and employees have been overcharged by up to 50% more than they should have been over the last three or four decades. This is why the deficit; they give themselves a bargain on the borrowing side. They are the only borrower I know of in this country that determines the rate of interest on the money they borrow. They've given themselves a good deal on that.

There are deficits? Surprise, surprise.

Mr. David Price: In your first recommendation, you say, “Bill C-78 should be amended so that contributor and retiree consent...” How would you describe these people? Would it be a board of some kind?

Mr. William Krause: No. You would want to have the individual plan...

This is common, I think, in the Ontario jurisdiction, for example. In order to take surplus funds out, you would have to get a two-thirds majority of the current employees contributing to the plan and a two-thirds majority of retirees who would agree.

• 1620

Now, that would be the best recommendation. I could give you an alternate one using the Pension Benefits Standards Act, but we want to see a formula where there must be consent of a majority in each case, a substantial majority, before you touch any funds.

Mr. David Price: Okay. Thank you.

The Chairman: Thank you, Dave.

I have Tony next. I don't have anyone else on my list, so please indicate if you have more questions.

Tony.

Mr. Tony Ianno (Trinity—Spadina, Lib.): Thank you very much.

I'm curious, Mr. Hindle, if you might be able to tell me, regarding the surplus, of any plans you're aware of where it's a legislated plan and the government would guarantee the deficit and share the surplus with employees.

Mr. Steve Hindle: Legislated plans? It points out the difficulty of having a plan enshrined in legislation. Certainly it's not that uncommon in private sector plans to have that type of arrangement. The professional institute itself has a plan such as that. The Ontario pension board plan is that way, and the OPSEU trust fund is that way.

Mr. Tony Ianno: Is it a shared risk with management or is it solely—

Mr. Steve Hindle: The employer takes the hit for any shortfalls in the plan.

Mr. Tony Ianno: So they basically will share the surplus with the employees, and that type of thing.

Mr. Steve Hindle: There's no guarantee that they'll share the surplus with the employees, but the surplus is in the plan. The employer does not have the unilateral right to remove the surplus from the plan. They do have the obligation to make up any funding shortfalls.

Mr. Tony Ianno: Okay. So they don't necessarily share with the employees on the surplus.

Mr. Steve Hindle: No, but they also don't have the right to take it away from them.

Mr. Tony Ianno: I see. Do you know any other jurisdiction where legislated plans are...

Mr. Steve Hindle: None that I'm aware of.

Mr. Tony Ianno: Okay.

In an Ottawa Citizen article dated February 27, 1998, it states that you said you were willing to let the government have the surplus as long as it promised to make up the shortfall should the plan run into a deficit.

Am I quoting you correctly?

Mr. Steve Hindle: That is probably an accurate quote.

Mr. Tony Ianno: Okay. Thank you.

Mr. Krause—

Mr. Steve Hindle: You're not interested in whether or not I still believe that.

Mr. Tony Ianno: I was curious about it being an accurate quote.

Mr. Steve Hindle: Just as any discussion of a surplus or a deficit is a snapshot in time, that's exactly what that quote is. Circumstances change, and I'm sure as a politician you recognize that.

Mr. Tony Ianno: I do. That's why I asked you only if that was a correct quote. I thank you very much for it.

Mr. Krause, have you been part of the process in the last year in some form?

Mr. William Krause: SSEA has not been involved in the process of any negotiations with the government over its pension matters. We actually have been active, along with our various colleagues and other groups that support us, for over a year and a half in Federal Court, taking the government to task over the government's violation of the current act and its failure to make contributions into the plan as required by law since 1996 and its failure to credit pension interest, which it did last year.

Mr. Tony Ianno: So you've been somewhat aware of the overall process. Have you been sending information to the government, aside from the legal side, in terms of your opinions?

Mr. William Krause: We have been analysing the situation and we send information to our members. The same information we give to our members we give to government members as well.

Mr. Tony Ianno: And you've been dealing with this for a year and a half?

Mr. William Krause: The legal aspects of it, yes, but on an ongoing basis we've been involved in the pension debate over time.

Mr. Tony Ianno: How long was that?

Mr. William Krause: Our involvement in the pension debate goes back I think as far as the 1980s. Certainly we were active at that time. I know the government wanted to move at that time to remove a guarantee of indexation. Again, it was the government attempting to look at how it could pass costs on to employees. We said no. We resisted and joined other unions who were resisting that move. We wanted the guarantee of indexation we were paying for.

Mr. Tony Ianno: So you've been involved in this process for quite a long time, then.

Mr. William Krause: The association has. I've been president for the past seven years, but the pension issue has not been active during that entire time.

Mr. Tony Ianno: I see. When was it active from in terms of the last seven years you've been involved?

Mr. William Krause: I'd say over the last three to four years we have been active on the pension issue. Again, we have written Treasury Board presidents to ask questions about the management of funds, what we read in Public Accounts of Canada, etc., and that type of thing.

• 1625

Of course, that was instrumental in terms of identifying what the government was doing so that we could take the appropriate legal action.

Mr. Walter Kelm: I just want to add to that. I've been advising the SSEA for some time, and—

Mr. Tony Ianno: How long has that been?

Mr. Walter Kelm: Twenty years.

One of the reasons the legal action was taken, I recall from working with SSEA, was that many letters were sent to the president of the Treasury Board asking for information. There was never a satisfactory answer. The only way they could get an answer was to go to court.

Mr. Tony Ianno: When did you leave the Treasury Board, sir?

Mr. Walter Kelm: I retired in 1990.

Mr. Tony Ianno: So you were advising, in the interim—for, I guess, 11 years—the SSEA while you were acting on behalf of the Treasury Board?

Mr. Walter Kelm: I beg your pardon?

Mr. Tony Ianno: While you were part of the Treasury Board and on their advisory... or in your role as an employee, you were advising the SSEA?

Mr. Walter Kelm: Often I was dealing with them across the table.

Mr. Tony Ianno: Oh. So you weren't advising them.

Mr. Walter Kelm: No, no.

Mr. Tony Ianno: I'm sorry; I misunderstood something. You said you advised the SSEA for 20 years, and that you'd been working for the government until 1990. If you take 1979 from 1990, that's 11 years. Which statement is incorrect, that you were advising the SSEA or that you were working for the government at the time?

Mr. Walter Kelm: I misinterpreted your question. I've been dealing with them for 20 years.

Mr. Tony Ianno: I see.

Mr. Walter Kelm: Up until 1990, they were across the table from me, because I was representing the Treasury Board. Since 1990 I've been advising them, and other groups as well. I have been involved not only in the public service pension side but also very much involved with the seniors' benefit discussions with CARP. I also advise the Canadian Association of Retired Persons.

Mr. Tony Ianno: And why didn't you give them what they wanted, or advise the government at the time—

The Chairman: Order.

Tony, I'm not sure that's—

Mr. Tony Ianno: But I need to know this in terms of the transition. What happened is that in 1990, he left the government and then advised the SSEA. I'm curious in terms of what didn't occur in that time while they were discussing an issue.

The Chairman: Is it relative to the bill?

Mr. Tony Ianno: It's relevant in the sense that I need to know the amount of time people spent on an issue so that, in effect, when when we're dealing with the timeframe, we understand that it's been an ongoing process. I'm just curious to know how it works.

The Chairman: Well, maybe you want to wrap up that line of questioning.

Mr. Tony Ianno: Sure.

Do you mind just...

Mr. Walter Kelm: Probably my most significant involvement, then, is with SSEA as well as with FSNA, when the former government brought in Bill C-55 and tried to do away with indexing by regulation.

Mr. Tony Ianno: That was 1980?

Mr. Walter Kelm: That was 1992, or 1993; I'm not sure.

Mr. Tony Ianno: But that wasn't with the government; you were now advising separately.

Mr. Walter Kelm: No, that's right.

Mr. Tony Ianno: What I'm wondering is, in 1989-90, when you were advising the people dealing with SSEA, what changed?

Mr. Walter Kelm: I wasn't involved in pensions at that time. I was director of policy development for the Treasury Board.

Mr. Tony Ianno: Not on pensions, then.

Mr. Walter Kelm: No, not on pensions.

Mr. Tony Ianno: I see.

Mr. Walter Kelm: The pensions involvement came about 10 years before that.

Mr. Tony Ianno: How were you, for those 11 years, on the opposite side of the table from the association regarding the pension issue?

Mr. Walter Kelm: Well, as director of policy development, I dealt with many issues. That question would come up from time to time.

Mr. Tony Ianno: So you did deal with pensions on that issue.

Mr. Walter Kelm: From time to time, yes.

Mr. Tony Ianno: I'm sorry, Mr. President, but I'm curious in terms of—

Mr. William Krause: Mr. Chairman, I have to object to this.

The Chairman: Order.

Tony, I'm not sure it's relevant to the bill.

Mr. Tony Ianno: Okay. So is it the witnesses who are determining... in terms of the speeding-up process, or... I'm just curious to know how it works.

The Chairman: No. I am suggesting to you that I'm not convinced that line of questioning is relative to the bill.

Mr. Tony Ianno: Relative or relevant?

The Chairman: Relevant, relative—relevant, okay?

Mr. Tony Ianno: Okay, Mr. Speaker. I'll go with your ruling.

The Chairman: Thank you. Do you have anything else you want to pursue?

Mr. Tony Ianno: No, I'm fine, thank you.

The Chairman: Okay.

Dave Price and then Dave Chatters.

Mr. David Price: Mr. Hindle and Mr. Krause, you both talked about your fear that the government could end up setting pension plan premiums probably a little bit higher and ending up with, say, an artificial surplus at the end that they could be drawing off from.

Do either of you have any suggestions as to how we might be able to protect ourselves against this?

• 1630

Mr. Steve Hindle: The simplest protection would be the establishment of the pension management board, with the authority to oversee the administration of the plan to ensure that funding levels were adequate to provide the pension that was to be provided under the pension plan.

That's very normal. It would result in changes to premium or contribution rates and changes to benefits as appropriate, when appropriate. I think that's the best protection, to provide those who are most affected by the provisions of the pension plan—in other words, the contributors and the retirees—with a say over how the money's managed.

Mr. David Price: Therefore, the current set-up of the board is one you don't agree with, naturally.

Mr. Steve Hindle: That would be a safe statement.

Mr. David Price: Oh, oh. Thank you.

The Chairman: Dave Chatters, please.

Mr. David Chatters: I was just curious, as a follow-up to the question by Mr. Ianno, what circumstances changed from the time you made that quote to today, that you would make a complete reversal of your position from that time.

Mr. Steve Hindle: It's not actually a complete reversal. At the time, it was based on the likelihood of having any real chance of getting the government to move. It was in some ways a bargaining chip to try to get them to the table and discuss what was going on with the pension plan.

As well, a quote such as that would presuppose that I can act in a fashion as cavalier as the government seems to be acting in terms of dealing with the surplus, and that what I say really determines what will be done with the surplus.

Given the opportunity to have a discussion with the people I represent, as well as the representatives of a significant number of other members in the plan, you can call it a revelation, or seeing the light of day, or whatever you will, but I think it is important at this point to recognize that there is a requirement for more discussion of the legislation, certainly, and more discussion between the employer and the government and the members of the pension plan about what to do with the $30 billion surplus.

Mr. David Chatters: But if you didn't really think at that time you had any real chance of influencing the government's decision, do you now think you have any real chance of influencing the government's decision now that the legislation has been introduced?

Mr. Steve Hindle: I expect that this government will do what this government wants to do without adequate public consultation. Despite thinking that, I'm still here today. I'm still dealing with members of Parliament individually and in groups to express our concerns. I still hold out the faint glimmer of hope that some of what we are saying will get through to members of the government, be they in cabinet or in the backbenches, and make them realize that they are moving too fast and that they do need greater opportunity to hear from Canadians about what they intend to do.

Mr. David Chatters: I probably couldn't express my reason for being here any better than you did.

I'm disappointed you didn't return the question with a comment on the Prime Minister's quotes on the GST, a snapshot in time as well.

Thank you, Mr. Chair.

The Chairman: Thank you, Mr. Chatters.

Lorne.

Mr. Lorne Nystrom (Regina—Qu'Appelle, NDP): I apologize for coming in late. I'm taking Yvon Godin's place. He's at the CLC convention. That's why I'm in late, and I apologize to witnesses.

[Editor's Note: Inaudible]

Mr. Tony Ianno: —

Mr. Lorne Nystrom: Well, I tried to push your name, Tony, but I'm afraid you didn't get it. It was some guy from British Columbia. That'll happen tomorrow, not today.

My general question is in terms of the surplus. How did the government handle this in terms of what it's doing with the surplus compared with surpluses in private pension plans? I wonder if you can elaborate just a little bit more on that.

Again, I apologize for coming in so late and for not hearing the beginning of this.

Mr. Steve Hindle: The government is intending to give itself unfettered access to not only current surplus but also any surpluses that develop in the plan as it's amended, presumably effective April 1, 2000. There is no employer in this country, outside of a government, that would be able to access a surplus without meeting certain restrictions under the legislation. The government as an employer is continuing to put itself outside of a legislative framework of pension plans across this country.

Mr. William Krause: One other point I want to emphasize is contained in the letter we've submitted to the committee. The government, through Treasury Board ministers, will be able to determine the size of the surplus, by and large, because it will set both the benefit and the contribution rate.

• 1635

When it does that and sets a surplus, and gives itself the authority to move the surplus into general revenues, it effectively is taxing government employees, members of the armed forces, and members of our RCMP. It effectively has the ability with this legislation to tax these people and take the surplus out of the plan as general revenue.

I think there's a danger in this plan. Besides not acting like anybody else in this country with respect to the management of a surplus, it is effectively going to be a tax. I think the government is going to be basically in a conflict of interest situation over its role as the generator of revenues and the administrator of this pension plan.

As well, I would think there's an additional conflict of interest. Clearly, whatever benefits it gives to employees at the bargaining table it can more than take back by increasing the premiums in this plan and then taking the excess of what's needed away from the surplus.

So we're looking at behaviour quite uncharacteristic, and certainly at some power nobody else, in any provincial or other jurisdiction, has, and as well a problem of potentially having a tax that's rather hidden.

Mr. Lorne Nystrom: I was going to ask you that question of whether this is happening in any other jurisdiction in the country, but what about western Europe or the U.S.? Are you aware of a precedence for this kind of spending of the surplus, so to speak, in any other country? Is there another model that...

Mr. William Krause: I think the model we have is unique to Canada. This legislation has been crafted with the intent of taking $30 billion. It's particularly for that purpose.

I mean, if it was really our purpose to revamp this plan, I think we would have spent a great deal of time with extensive contributions from stakeholders—interested retirees, associations. We would have had extensive and open discussions on the philosophy behind how to manage a plan like this before we would go on to specific, detailed recommendations and amendments like the ones we have before us.

But the intent is not to revamp and modernize the pension plan and make it more responsive to the needs of the plan members. The attempt is merely to grab some money. Let's acknowledge that right up front.

Mr. Steve Hindle: We have no knowledge of anything like this happening in any other western democracy.

Mr. Lorne Nystrom: I'm really concerned about the whole question of democracy in our country and democracy in government in Canada. It seems to me before a major change like this is made there should be some kind of concurrence with the people who have paid into the plan over the years. There should be some type of not just consultation but also green light or authority from people involved in building up the surplus over the years. That has not happened, of course.

I wonder if you've asked government members whether or not they would in principle, as a fallback—the second-best fallback—be in favour of a free vote on this. It shouldn't really be a question of great confidence.

Of course, the Prime Minister can deem anything he wants to be confidence. He can deem the colour of the chairman's hair to be confidence, if he wants, in a vote in the House of Commons.

The Chairman: I'm listening, Lorne. Let's try to stay on the bill, if we can.

Mr. Lorne Nystrom: I'm very much on the bill.

The Chairman: You have a point of order, Tony.

Mr. Tony Ianno: All votes in the House of Commons are free for each member to determine how to vote.

The Chairman: I'm not sure that's a point of order.

I'd like you to stay on the bill, Lorne, if you could, please.

Mr. Lorne Nystrom: I'm very much on the bill.

The Chairman: I've chastised other members for not staying on the bill. You're entitled to your opinions, but I invite you to stay on the bill.

Mr. Lorne Nystrom: The question is, how should this bill be approved in the parliamentary process, and have you thought of requesting a genuine free vote on this? Of course, most votes in the House are not free. We know that. The Prime Minister will often deem things to be a matter of confidence.

As a fallback, would you think the approval process for this type of radical departure, which is unique and radical in the world—not just in this country but in the world—would be subject to a free vote where the Tony Iannos of the world could vote according to their conscience and according the pressure of their constituents? That would be very interesting rather than accordance to the whips.

Now, in private members' business, we do have free votes most of the time, but what about doing it on a bill of this stripe?

Mr. William Krause: I don't think that would be appropriate. In fact, I think that would take away from the fact that we have a flawed piece of legislation.

I think it would be advisable for either this committee, and maybe the Senate, hopefully, to look at the bill and, for example, pick up the theme we raised about seniors and the widowers and widows who receive an inequitable amount of money from this plan, and to say, look, we can make an improvement in this plan in this one area, so let's put this amendment forward.

We'd rather see some amendments that improve the bill, that make it workable. If we can't get the major overhaul this legislation needs, hopefully there are some other amendments that could be put forward that people could vote for and the government could accept. Obviously, that would take time, and clearly the government has demonstrated that, for them, time is of the essence.

• 1640

And to the question, “How do you steal $30 billion?”, the answer is, “Quickly and quietly.”

Mr. Lorne Nystrom: So it really is the theft of $30 billion. That's the biggest heist in the country.

Voices: Oh, oh!

Mr. Lorne Nystrom: I wonder if Tony can explain that one to us.

The Chairman: Order.

Thank you, Lorne.

Mr. Lorne Nystrom: You're welcome.

The Chairman: As there are no more questions, I want to, on behalf of the committee, thank our witnesses for helping us today with Bill C-78.

I remind members that we have two meetings tomorrow, at 8.30 a.m. on NRCan estimates, and at 11 a.m. on clause-by-clause work on Bill C-78.

With that, we're adjourned.