Bankruptcy law lets down pensioners
PM’s lack of compassion follows Canadian tradition of letting employees bear brunt of company collapse
Even the staunchest supporters of Prime Minister Justin Trudeau must grow weary of his habit of deploying bromides when substance is called for.
Sears pensioners found no comfort in the PM’s comments last month expressing, you know, “compassion” for their plight. There are no easy answers, the PM offered. The world of work has changed, he noted. Why, the nature of the global economy isn’t what it was. And hey, that’s why we have measures like the Canada Pension Plan.
Perhaps Wednesday’s call for a national day of action by the advocacy group CARP will cause Trudeau’s advisers to draft a more meaningful response to the travesty that continues to unfold for the thousands of Sears pensioners who had spent years, even decades, snug in their understandable assumption that their defined benefit pension plan was as golden as promised. Golden, as in unbreakable and reliable.
Defining the treatment of Sears pensioners in the liquidation process as a “travesty” does not originate with me.
Writing in the Financial Post Friday, former Encana Corp. CEO Gwyn Morgan deployed this sharply specific language aimed at Canada’s bankruptcy law, which punts pensioners behind such secured creditors as the banks and bondholders in the distribution of assets.
“Meanwhile,” Morgan writes, “government employees face no risk of ever losing their pensions. This means that the only Canadians who can really count on their pensions are the employees of the same government that prevents private-sector employees from being able to count on theirs.”
This has to change, and it’s significant that Morgan has weighed in on this.
Why? Because he deflates one of the primary arguments trotted out in favour of the status quo: that changing bankruptcy law would inhibit a company’s ability to access debt.
“As the former CEO of a company that raised tens of billions of dollars in Canadian debt markets, I can honestly say that no banker or bondholder ever paid any attention to the funding status of our definedbenefit pension plan,” Morgan writes. “In reality, the only time lenders become concerned about employee pension obligations is when a company is at the brink of collapse, in which case they wouldn’t consider lending anyway.”
The country has a serial history of watching pensioners bear the brunt of collapse, perhaps none as painful as Nortel Networks.
Stories that have drawn fewer headlines — I’m thinking of the battle waged by Wabush Mines pensioners in Newfoundland — continue to play out alongside the Sears drama.
But it is the story of the once-great retailer that serves as the catalyst for change. It isn’t just the role the chain played in the history of the country’s retail landscape — and the hole that has been blown through that landscape with the retailer’s demise.
It is the billions of dollars in dividend distributions — “unconscionable . . . massive asset stripping,” in Morgan’s words — to shareholders that has recast Sears employees, including hard-working salespeople earning modest wages, as mere dupes.
The number of Sears retirees totals 18,000. Approximately 16,000 of those were enrolled in the company’s defined benefit pension plan. The remainder were invested in the company’s defined contribution (DC) pension plan, which effectively functions as a matched RSP and will pay out at 100 per cent.
The lump sum payments to those in the defined benefit plan will be determined by the underfunded assets in the plan.
The windup of both components is being administered by Morneau Shepell Ltd. (yes, that Morneau Shepell), which in a note to recipients estimated that the plan could sustain payments at a so-called funded ratio of 71 per cent. Is this not criminal? Gwyn Morgan makes the case that seeking legal redress for the billions paid out to shareholders will only prolong an expensive and costly legal battle. (The Nortel saga turned into a two-decades-long, crossborder fight.) Instead, he urges the Trudeau government to act now and change the law, “to prevent Sears, and other private-sector defined-benefit pension plan members, from seeing their futures torn apart in bankruptcy court.”
Both the Bloc Québécois and the NDP have tabled private member’s bills seeking to prioritize pensioners. If the prime minister’s blasé comments last month are any indication, he doesn’t think much of either. What’s truly unconscionable is that he could be so dismissive of former Sears employees who, over a lifetime of work, earned that pension.