Gwyn Morgan: Trudeau likes to portray the image of a leader looking out for the little guy. It’s time to walk the talk and change laws that leave pensioners unprotected
The demise of Sears Canada has seen 16,000 employees lose their jobs. That’s an unfortunate, but inevitable, outcome in these times when online giants Amazon and Alibaba are transforming the retail universe. But what shouldn’t have to be inevitable is the loss of pension benefits for those employees and another 18,000 Sears retirees.
If the 2009 bankruptcy of tech giant Nortel is a guide, it will be years before Sears pension plan members know if they will receive any compensation for the loss of pensions they dutifully paid into for decades. Nortel employees had to endure a seven-year battle before receiving a fraction they were rightfully entitled to.
The root cause of this travesty is that, under Canadian bankruptcy law, secured creditors such as banks and bondholders stand ahead of pension plan members in the distribution of insolvency assets. Meanwhile, 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.
The only Canadians who can really count on their pensions are government employees
The Nortel bankruptcy ignited calls for changes to Canadian bankruptcy law, but the federal government failed to act. Then, when Indalex, a manufacturer of aluminum products, declared insolvency, jeopardizing staff pensions, the workers’ case, Sun Indalex Finance versus United Steelworkers, went to the Supreme Court, raising hopes the high court would finally force change. Those hopes were dashed when the court ruled that pension plan members were simply one among other unsecured creditors.
The plight of Sears pensioners has once again ignited calls for change, including a new private member’s bill tabled in Parliament. But the only response from the government was a pathetic statement from Innovation and Economic Development Minister Navdeep Bains saying “the government is connecting Sears employees with services to help them through this difficult time.” There’s been no indication the government is considering changing bankruptcy laws that leave pensioners unprotected.
One of the arguments that has deterred governments from changing bankruptcy law is that it would harm the ability of Canadian companies to access debt capital. 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 defined-benefit pension plan. 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.
Calls for the Sears retirees to receive higher priority in distribution of insolvency assets have encountered opposition from the 250 independent local “Hometown” dealers whose businesses were destroyed by the Sears Canada closure. Clearly, their position is bleak, but the situation isn’t comparable to that of the pensioners. Like all business owners, they knew that their financial future depended on saving profits made over the years. Moreover, the demise of Sears is part of a massive restructuring of the entire retail sector that’s been unfolding for quite some time.
By contrast, Sears pensioners, many of whom spent most or all of their careers working for the company, were content with modest pay in the belief that the compulsory pension plan they paid into for decades would provide security for their retirement years. They had no reason to believe otherwise. Sadly, this belief has made them worse off now than if they had never had a pension plan and had been left to make other retirement preparations instead.
Sears Canada is jointly owned by its American parent holding company and a U.S. hedge fund run, strangely enough, by the CEO of the Sears parent holding company. Between 2005 and 2013, the company sold its prime Canadian real estate assets and sent $3.5 billion south of the border to those shareholders by way of special dividends and share buy-backs. On Thursday, lawyers representing former Sears workers met with lawyers for the company to try to reach an agreement on appointing a trustee to review that huge transfer, made while the pension plan was short $300 million. That the Sears Canada Board would make the unconscionable decision to approve this massive asset stripping, while leaving their workers’ pension plan woefully underfunded, begs for legal retribution. But that would only increase the costly and time-consuming wrangling in bankruptcy court, further lessening any chance that the 16,000 laid-off employees and 18,000 retirees will ever receive any part of the meagre assets still left in the company.
Prime Minister Justin Trudeau likes to portray the image of a leader looking out for the little guy. It’s time he walked the talk. The federal government should act now to change the law to prevent Sears, and other private-sector defined-benefit pension plan members, from seeing their futures torn apart in bankruptcy court.
Gwyn Morgan is the retired founding CEO of EnCana Corp. He has been a director of five global corporations.