He said: Honourable senators, I would like to draw to the attention of the Senate the need for the Government of Canada to take immediate action to help those Nortel employees and pensioners who are suffering financial hardship caused by the government's lack of action as this Canadian research and development flagship faces bankruptcy.
When Nortel Networks filed for bankruptcy protection on January 14, 2009, the carefully laid plans of more than 20,000 current and former Nortel employees in Canada were shattered. The federal government's lack of response to their plight and the ongoing dismantling of this former telecommunications powerhouse made a bad situation much worse.
Nortel, supported by the Canadian taxpayer and powered by its employees, played a critical role in putting Canada on the map as a leader in the knowledge-based economy. It has been the biggest investor in research and development in this country, and its intellectual property developed with the investment of taxpayers' dollars continues to benefit us all.
In 2007, Research Infosource reported that Nortel spent $1.85 billion on research and development, nearly 12 per cent of all business research and development spending in Canada that year. Research in Motion spent only $245 million that same year. Meanwhile, General Motors, newly revived with $10.6 billion of Canadian and Ontario government money, indicated recently it would maybe commit $1 billion to research and development between now and 2016.
Nortel filed for bankruptcy protection in Canada under the Companies' Creditors Arrangement Act, saying it planned to restructure the company. Since that time, about 1,000 employees have been terminated in Canada without severance pay. Special pensions and retirement allowances were halted, and in May Nortel announced that its defined benefit pension plans were only 69 per cent funded. When it became apparent that restructuring was not a viable option, Nortel began to sell off its assets to the highest bidder. As unsecured creditors, current and former employees were left to line up behind the company's suppliers and trade creditors, financial backers and even government, competing for a share of the proceeds as the corporate garage sale gets under way.
Each one of us understands the role Nortel has played in defining the modern Canadian technology sector and I believe we all acknowledge that it was the partnership between the federal and provincial governments and the Nortel employees themselves that fostered this success story.
That partnership and its incumbent responsibilities cannot simply be ignored. The people of Nortel, and indeed all Canadians, are depending on the government to protect their interests and the interest of our country. So far, they have been very disappointed.
Honourable senators, today on the front lawn of Parliament, these very Canadians gathered to try once again to impress upon the federal government that action must be taken to protect their interests as the Nortel liquidation continues.
These Canadian pensioners, employees and laid-off workers have every reason to feel angry and discriminated against. They face losing 31 per cent or more of their pension entitlement, yet their counterparts in the United States and in the United Kingdom are being sheltered by federal pension guarantee funds. In the United States, for example, there is federal protection for all American pensioners up to $54,000 per year. On the other hand, in the United Kingdom, there is central government protection of up to $50,000 per year.
The U.S. government-backed Pension Benefit Guaranty Corporation has in fact taken over Nortel's U.S. pension plan and has been a member of the unsecured creditor group, which has been influential in United States and Ontario court decisions regarding company liquidations. Ironically, there is no international standard being set between jurisdictions to determine equal treatment among unsecured creditors.
Is it fair, for example, that $3 billion out of the $6 billion value of Nortel ends up going to the United States, while the rest of the pensioners and workers of Nortel literally get nothing?
What is the Government of Canada doing for these 20,000 Canadians and their families who are begging for protection, who are begging to have their interests protected and put ahead of other unsecured creditors in Canada?
The average Nortel pension in Canada is approximately $20,000 a year.
In Ontario, which actually has Canada's only pension benefit guarantee fund, the government finds itself seriously trapped under a multi-billion-dollar bail-out payment to General Motors and Chrysler. The latest annual report for the Ontario Pension Benefits Guarantee Fund indicated the plan had a $47 million deficit at the end of March 2009. Nortel paid all of the required insurance premiums into this fund since it began. The fund should have covered up to 12,000 a year for those affected by the Nortel bankruptcy. It is broke at the time when Ontario residents need it most.
Canadian Nortel pensioners had hoped to avoid a wind-up of the Canadian pension plan to allow a stock market rally and better interest rates to rebuild some of the shortfall. So far only the Quebec government has offered to step in and protect its residents by taking over the pension plan for the 6,000 Quebec residents who are affected. The Nortel plan has $2.5 billion in assets with roughly $800 million belonging to Quebec members. These assets would be invested in efforts to recoup the funding shortfall.
For those who argue that these employees were fortunate enough to have a pension at all, it is important to remember that contributors to defined pension benefit plans are severely restricted from participating in registered retirement savings plans, foregoing tax savings and deferring their income, based on an expected retirement pension payout. They did their part but, sadly, we failed them.
Regulations and laws permitting, the underfunding of these plans put not only these Nortel employees but all Canadians participating in company pension plans at risk. Surely there is some onus on us and on government to make up for this breach of trust. These workers and retirees and those on disability pension are not asking for a bailout, they are simply asking their government to protect their investment, the investment they made in their jobs and retirement.
It is also apparent that we need to work quickly to update our current legislation governing pension plans in this country. In particular, one area of the law governing bankruptcies and insolvencies must be addressed immediately.
As Don Sproule of the Nortel retirees committee put it:
. . . pensioners should rank higher in the pecking order than other unsecured creditors and especially bondholders, who are protected by credit default swaps and claims against Nortel assets in the United States and Britain.
Nortel bond holders and creditors took a calculated risk with their investment and have the advantage of being able to write off the subsequent losses as tax deductions. Nortel pensioners and severed employees cannot claim their loss of benefits on tax returns. Simply put, employee claims against the assets should take precedence over commercial claims.
The Nortel situation is just the tip of the iceberg when it comes to the number of seniors who are at risk because of outdated legislation. We, collectively, must take steps to protect the depleted Nortel pension fund to ensure it is not wound up during the worst possible market conditions.
Canadian legislation forces employers facing bankruptcies to terminate pension plans instead of allowing them to be taken over by another administrator. Quebec has pledged to change its regulations to overcome this ill-conceived legislation, and others should follow. All Canadians, regardless of where they live, should be able to benefit from a pension plan management program such as that being offered in Quebec to its Nortel retirees.
Despite the many problems at Nortel, we cannot forget there are still operating units that continue to lead the world in research and development. At a time when the federal government should have been playing a leadership role to ensure these core high-tech jobs in their head offices were located here in Canada, we rolled over and played dead, not even offering verbal support for a made-in-Canada solution to save the last embers of a flagship Canadian company. This will shake the confidence of all Canadian companies, domestic or otherwise, that count on the support of our government to stand up for their interests and the interests of their people.
The federal government is mandated to seek a solution that is in the national interest.
I will quote former Deputy Prime Minister Don Mazankowski, who wrote in an essay published in The Globe and Mail this summer:
. . . it is difficult to conceive that the government has no legitimate role in this process and should be a mere bystander.
. . . I urge the government in this particular instance to use its authority and persuasive powers to ensure that the best interests of Canada prevail.
Is the government 100 per cent sure, as Minister Clement has said, that they can do nothing? Is it true or are there ways the government can intervene and support these former workers of Nortel?
The Canadian government needs to be proactively working to ensure that Nortel's worldwide assets are available to Canadian creditors and pension plan members. It is apparent that the American and British governments are ahead of us on this. Nortel Canada is bearing a disproportionate share of Nortel's global cost — all for lack of, frankly — federal oversight, involvement and support.
Federal bankruptcy laws allowed Nortel to bypass the very provincial pension benefit and severance laws that would have protected these workers in favour of other creditors. We have to act and act now.
We have the jurisdiction to set conditions on the sale of Nortel business to foreign acquirers to ensure these foreign acquisitions are done in a way that will bring net benefit to Canada. The government can allocate sale proceeds of these assets to Nortel pension and long-term deficit plans and to fund unpaid severance, to ensure that these foreign purchases benefit Canada.
Our government has both a short and long-term role to play in helping those affected by the Nortel bankruptcy, but the clock is ticking. It is time for action.
Some Hon. Senators: Hear, hear!
Hon. Tommy Banks: Honourable senators, I do not know anything about the commercial aspects to which Senator Harb referred, but I want to associate myself with his view. In the order of precedence for unsecured creditors, the fact that bond holders — as in his example — have taken a calculated risk whereas persons who contributed to their own pensions did not, is something to which great attention ought be paid.
I thank Senator Harb for bringing that to our attention.
The Hon. the Speaker: No other honourable senator wishing to intervene, this inquiry will be considered debated.