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Welcome


September 21, 2014
USSC Restructuring

You may have heard that US Steel Canada (was STELCO) filed to restructure September 16.  Their filing provides an excellent example of what is wrong with the Ontario Pension Benefit Act and the Federal Business and Insolvency Act (BIA) and the Companies' Creditors Arrangement Act (CCAA).  It is, unfortunately, a scenario that we may be facing in the next few years.

The following message has been delivered to the people GENMO members have been meeting with over the last year; including all three levels of government, the Ministry of Finance and the media.

 

With US Steel Canada (USSC) filing for restructuring under the Companies' Creditors Arrangement Act (CCAA) this week after apparently attempting to shed pension obligations through the Canada Business Corporations Act (CBCA) this summer, it is timely to recap our concerns.

USSC faced decline sales, lack of modernization investment and significant “legacy costs” such as pensions and benefit programs.  The very issues we outlined to you that GM Canada faces.

Both USSC and GM Canada are wholly owned subsidiaries of US companies; the shares of the companies are US shares.  Early reports show USSC shares have increased 10% which leads one to believe the US markets see restructuring or bankruptcy of foreign subsidiaries to shed legacy costs to be good business strategy.

As with GM Canada’s pension plan USSC’s pension plan is underfunded; reportedly USSC by $838.7 million, GM Canada by $3.5 billion. 

USSC puts at risk some 14,000 pensioners, pensioners now facing reductions in their monthly pension cheques; even though their pension is considered deferred earnings.  GM Canada puts at risk some 45,000 pensioners.

The impact of reduced pensions is felt Municipally, Provincially and Federally.  Solving the problems is the responsibility of the Provincial and Federal governments.

The Ontario Pension Benefits Act needs to be strengthened to protect the pension plan members.  Simply put, plan members are entitled to their deferred earnings and it is the responsibility of the government to ensure this through legislation.  The widespread underfunding of pensions demonstrates that this current legislation and enforcement is not accomplishing this.  Companies must be induced to fully fund their pension plans.  We have outlined some proposals to address this.

There is a need to add options for the treatment of pensions abandoned through restructuring and bankruptcy.  Today, they must be annuitized.  We know from the NORTEL experience that the Canadian annuity market is simply not large enough to handle these large numbers.  Estimates are that it will take five to seven years to annuitize the NORTEL pensions; some 12,000 pensioners.  Adding 14,000 USSC pensioners to this limited market is not likely practical.  Adding 45,000 GM Canada pensioners would be catastrophic.  We have outlined some proposals to address this.

As more large companies restructure the exclusion of GM Canada pensioners from the Ontario Pension Benefits Guarantee Fund (PBGF) becomes very troubling.  Recently Algoma and USSC have filed, we have explained our concerns with GM Canada.  Note that these were three of the companies that took advantage of Regulation 5.1; “Too big to fail”.   GM Canada pensioners should be covered by the PBGF.

The federal Bankruptcy and Insolvency Act (BIA) and CCAA prioritize pension solvency deficiencies so low as to virtually ensure there are no assets to fund them.  GENMO, as a member of the Canadian Federation of Pensioners has provided input to the Industry Minister’s review of the BIA and CCAA covering four points; Give effect to the pension deemed trusts created under federal and provincial legislation in all insolvency proceedings, Grant pensioners priority over secured creditors to amounts covered by a deemed trust, no matter when the security was granted to the lenders, Ensure the pension deemed trusts are given effect even if the plan is wound-up after the insolvency proceedings have commenced and If Parliament is unwilling to make such changes, extend the secured priority ranking that currently applies to unpaid normal costs today to all amounts owing to the plan.

The CCAA filing of USSC should compel governments to address the pension issues, and act as a warning of what could happen in the future.




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