Finance Minister feigns sympathy but offers no guarantees

(Queen’s Park, Toronto) – Carleton-Mississippi Mills MPP Norm Sterling used yesterday’s Estimates Committee meeting to question Finance Minister Dwight Duncan on what he would be willing to do to protect Nortel Pensioners from having their income slashed once all of Nortel’s assets are sold off.

Mr. Sterling asked, on behalf of Nortel pensioners in his riding and across the province, whether the Minister would indicate to the Financial Services Commission of Ontario (FSCO) that he would be changing the existing rule that pension funds must be rolled over into annuities when the pension plan is wound up. Pensioners would like the option of rolling the money into an RRSP fund as an alternative to purchasing an annuity.

The Minister tried to sound sympathetic to the concerns of Nortel pensioners and said he would be studying the problem and introducing pension reform legislation in the fall but refused to commit to changing the rules surrounding the end of a pension plan and direct the FSCO to hold off on winding up the Nortel pension until the rules are changed.

“Time is of the essence for Nortel pensioners,” Mr. Sterling told the Minister. “FSCO could crystallize the pension tomorrow. FSCO has the discretion to wind up the pension plan when it determines that Nortel will cease to exist.”

If the Nortel pension is wound up now, pensioners will be forced to roll their pension into an annuity. With interest rates at a historic low, the value of the annuities will be very low.

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For more information, call Carleton-Mississippi Mills MPP Norm Sterling at: (416) 314-7900

Draft HaNSARD TRANSCRIPT – July 29, 2009

STANDING COMMITTEE ON ESTIMATES

MINISTRY OF FINANCE

Mr. Norman W. Sterling: Okay. I’d like to ask you some questions about pensions and what you’re going to do for—specifically, I’m going to talk about Nortel pensioners, many of whom reside in the area that I represent in the west part of Ottawa, but they’re in fairly large numbers across the province of Ontario. In fact, there’s probably something like 20,000 across Ontario. It could be anywhere between 15,000 to 20,000 pensioners.

The average age of these pensioners is 71 years of age, as a group told me yesterday in my constituency office in Ottawa. This is, I think, the third or fourth meeting I’ve had with them. The average pension they’re collecting is about $2,400 per month. But there are many in what they call the negotiated pension or ??union group; their average pension would be $12,000 a year. They’re very, very concerned about what’s going to happen in the next month or two, and they’re concerned because, as Nortel assets are sold off, it is up to FSCO to decide on the date when their pension trusts shall be wound up. As they have been told by a Mr. Gordon of FSCO, it is a discretionary decision on his part or FSCO’s part as to when that pension shall end.

One of the problems with the present legislation in the province of Ontario, as they describe it to me, is that FSCO has few options as to what happens with regard to the funds that are still there in that pension fund going forward. The pensioners describe it to me that there is one option and one option only, and that is for them to buy an annuity going forward. Well, given the fact that, in Canada, the annuity market is very limited, and we all know that interest rates are historically at low rates, the annuities that these people might receive, even if the pension fund is 70% solvent, 60% solvent—we’re not sure of the number; the last number that they have received was 69%; it was 100% going back into the fall, 84% in January; the last number they heard was 69%—will diminish their pensions probably to somewhere between 25% to 50% of what they’re now receiving.

What they would like is a postponement of the winding-up of this pension as they see the equity markets, the economy improving, going forward. That is one thing that they would like the government to act on, and this is an Ontario issue as Ontario makes the laws with regard to their pension. I might add Nortel is an Ontario incorporated company and that the pension laws are within our mandate.

The second thing that they are asking me to convey to you and ask you to do is give them the opportunity on the wind-up pension of not forcing them into necessarily buying an annuity but being able to have the right to roll that over into an RRSP, where they can then make their decision as to whether or not they want to buy an annuity or they want to invest that some other way in order to protect whatever little they might have going forward. Those are two reforms which are within the provincial mandate.

As I understand it, FSCO is an arms-length body and therefore may, at any moment, drop the hat in terms of winding up the pension fund that is a trust for Nortel employers. What I would like you to do, Mr. minister, is to make a public statement so that FSCO would understand that this government will act in the near future to amend the legislation to allow these two things to occur. Would you like to respond to that?

Hon. Dwight Duncan: Thank you for the question. We have had similar representations made to us, and the Nortel situation is one that obviously we’re very aware of and the challenges before them. I think, Mr. Sterling, you’re absolutely right in terms of when that pension deficit is crystallized and the impact that can have first of all on the amount available for an annuity and then obviously on low interest rate annuities and what that would mean. We are looking at that situation along with a number of others in the province.

I concur with the observation that there is a need for amendment to the Pension Benefits Act. We will be bringing forward legislative changes this fall. We will bring forward two packages of amendments arising out of Mr. Arthurs’s report. In terms of the postponing of the windup, I think we have to look very carefully at that. I would not for a moment discount the significance of that in terms of a way of helping to manage this situation. In terms of what individuals can do at windup in terms of what they can roll over into, that is something that, again, as part of the broader look we’re having at pensions, we’re looking at that actively.

The Nortel situation is here in front of us now. There are a number of other situations. I don’t think any of the requests are—I don’t think it’s unreasonable to ask the government to look at those as part of a package of legislative amendments. We are currently, I guess it’s fair to say, doing our due diligence in terms of the Arthurs recommendations. How they would apply to Nortel at this point will in part depend on the moment at which the state of the pension fund is crystallized in law. To that end, I take your questions and your recommendations under advisement, indicate to you and the people that you’ve met with that we take them very seriously, and as we respond to Nortel—and there are a number of other situations in Ontario, as you’re aware—obviously we’ll take them very seriously.

Mr. Norman W. Sterling: I appreciate that. One of the problems with the Nortel people, and I’m not aware of the other bankruptcy situations which may lead to crystallization of pension plan funds, but time is of the essence in this particular situation, and FSCO could crystallize the pension, as I said, tomorrow. The basis upon which, I understand, they crystallize the pension is when they believe that Nortel is no longer going to exist; 40% of the assets were auctioned off, as you know, last Friday, and if that sale proceeds through, then FSCO are going to be caught in a position where they are going to have to make a decision relatively soon, and probably before the Legislature reconvenes on September 14.

That is why I am asking you to consider making a very public statement of the exact nature of the relief that you might provide prior to the Legislature coming back so that FSCO would understand, perhaps, that waiting until the other 60% of Nortel assets are sold, or whatever happens to them, might be more prudent. I understand that there is a downside to postponing too, because, at the present time, Nortel employees who are on pension are receiving their full pension. Ever since the bankruptcy took place in January, the company has not been contributing to that pension plan, so we’re having a depletion of the pension fund and therefore that 69% is obviously going to be less than 69% as we go forward because nothing coming in and everything going out is leading to that. There’s a real spot that FSCO might be in in terms of deciding what their fiduciary obligations are with regard to calling it a day. That’s why I think it’s important that we send a clear signal at this point in time as to what are the options going to be available, if they’re going to change with regard to the wind up of these pensions, now, not a month from now, because that may be, in fact, too late. I hope it isn’t. These pensioners are very worried that FSCO will drop the penny right away.

I also want to ask you, with regard to if the Nortel pensioners receive less than they are, they could be benefactors of the Ontario pension guarantee fund. Presently, that fund is in a deficit position. As of the end of the last financial year, they were $102 million in deficit. The deficit would be much higher had you not lent the fund $330 million shortly after you came to power. On March 31, 2004, you gave them an interest-free loan of $330 million, and that later was discounted because of the no-interest clause, and so the value of it to the fund was much higher than a $330-million loan. We’ve got a pension benefits guarantee fund that’s in deficit. There is no plan as to how this is going to be funded going forward. Obviously the funding provisions in the present legislation for the pension benefits guarantee fund are not adequate to cover the kind of obligations that they have now or are going to have in the near future and maybe in the long-term future. What are your plans to provide for a self-sustaining pension benefits guarantee fund and what are your plans in terms of increasing the maximum from $1,000 to $2,500 as Mr. Arthurs recommended in his report?

Hon. Dwight Duncan: First of all, to verify what you’ve said about the state of the fund, I think, on a cash basis, it’s negative; on an accrual basis, there’s a small positive balance, but you’re right, there’s not enough to cover a claim by Nortel and there are a number of others—

Mr. Norman W. Sterling: On a cash basis, it’s in the positive sense—

Hon. Dwight Duncan: In a reverse, cash it’s positive, accrual it’s negative, so, you’re right about that. There’s not enough money in the fund, there never has; it’s been underfunded. Mr. Arthurs did recommend raising the limit to $2,500. He also recommended having an actuarial study done to look at how to finance that, whether it’s been properly financed, that is under way. I believe we’re going to get the study back and completed—Deputy, do you know when that will be completed?

Mr. Peter Wallace: End of the year, early next.

Hon. Dwight Duncan: The end of this year, early next year. You’re right, there is a challenge, we’re looking at options now going forward. I expect that we will be engaged in a fairly significant discussion among ourselves in the Legislature and obviously with those people affected by it, but obviously that fund has been, historically, not properly funded and it would not be able to meet a large obligation such as Nortel and there are others outstanding out there that we think may be coming forward.

Mr. Norman W. Sterling: How many others are there out there at the present time?

Hon. Dwight Duncan: Well, in addition to Nortel there are at least two other fairly large ones that we are aware of, there are a number of smaller ones as well and there may be, beyond what we’re aware of, more out there. So that’s the best information I can give you at this point, but it is something that we’re looking at all the options available to the government now with respect to how we would respond in the event that any or all of those pensions make a claim on the PBGF.

Mr. Norman W. Sterling: In January of this year, ironically the day after the bankruptcy of Nortel took place, the Legislature of Quebec introduced new private pension guarantees to their pensioners. Nortel has employees in Ottawa, Toronto and Montreal and we’ve got a situation now where perhaps the Nortel employees in Quebec will be more favourably treated because of the legislation in Bill 1 brought before the Legislature of Quebec which was, I believe, passed in mid-January, January 15 or about that time, which guaranteed to pensioners who were benefactors of defined benefit pension funds that their pensions would continue up to the amount that the pension fund, the one that went down, was funded. In my case, if I said 69% for Nortel, then pensioners would receive 69% of their pensions going forward. It was time-limited to five years, many people suspect that that will be extended by the Legislature of Quebec as well. Are there any thoughts on your part of providing Nortel employees in Ottawa and Toronto the same kind of protection that they’re receiving in Montreal?

The Vice-Chair (Mr. Garfield Dunlop): We’re down to about three and a half minutes.

Hon. Dwight Duncan: I’ll briefly say we’re looking at the Quebec model, and I’m going to ask my Deputy Minister and perhaps Steve Orsini to respond in more detail about the Quebec proposal.

Mr. Peter Wallace: It is worth remembering that Ontario is the only jurisdiction in Canada that does have such a fund in its current form. I’ll ask Steve to speak to the specifics, but it’s frankly not at all clear to us that the Quebec model offers significant protection to any group. I think the way it is structured and the way it is worded is something that we’re continuing to monitor but it is not at all clear to us that that establishes a model that would provide the benefit that might be anticipated and associated with that.

Mr. Steve Orsini: Just to elaborate further on what the Minister and deputy had mentioned and I think, Mr. Sterling, you captured it correctly in your understanding of the Quebec plan, it doesn’t guarantee benefit payments as to what the employer may have committed to the employee. What it does do is prevent that crystallization. So the Quebec model, as we understand it, and the details are still being developed, is that it takes the pension plan as it gets wound up and puts it in so that the investments aren’t converted to annuities.

And I think that as you acknowledged earlier, it’s not a very robust market for annuities. It’s difficult to convert investments that might be in stock, bonds and real estate into these types of annuities.

What Quebec is trying to do is not—at the low end of the financial business cycle, where, as you know from last fall, there were significant reductions in equities and that affected pension plans across the board. We’ve seen them start to recover. The idea was, can you not have them converted into annuities and lock in those losses at that time? It’s not clear whether or not—how conservative Quebec will be in their investments, because then who bears the risk? If they’re guaranteed a 69% funded ratio, as you mentioned, are they prepared to—so we don’t know how their investment plans will roll out. It’s still an uncertainty. So that’s a key point: to distinguish between what Quebec has and what the deputy referred to as what’s available in Ontario.

Mr. Norman W. Sterling: Well, will you commit yourselves to treating Nortel employees at least as well as they are being treated in the province of Quebec?

Hon. Dwight Duncan: As I said, as you can tell, we are actively looking at the Quebec model. It’s not clear to us, at this point, that benefit, but we are looking at that and a number of other options as we move forward.

Mr. Norman W. Sterling: I can assure you that the pensioners believe that the Nortel employees in Montreal are being treated better than they are in Ontario.

Thank you very much.