Pressure Mounts on Morneau to Drop Canadian Pension Proposal

Updated on
  • Finance minister accused of conflict amid Trudeau tax reform
  • Bill would allow creation of plans family firm pushed for

Morneau Says Canada Can Do Well With Higher Dollar

Canadian labor groups are calling on Finance Minister Bill Morneau to kill a proposed law allowing so-called target benefit pension plans amid a deepening outcry over his personal finances.

The finance minister introduced Bill C-27 a year ago to allow creation of the plans, which he advocated for as head of Morneau Shepell Inc., a human resources company his family founded. The proposed law hasn’t advanced at all in parliament since then.

On Thursday, Morneau announced he’d move his assets into a blind trust and divest all his shares in Morneau Shepell, while opposition lawmakers alleged the legislation’s introduction personally enriched him. Labor groups say Bill C-27 was proposed without notice or consultation.

“This one just popped up on the radar, out of the blue,” Matt Wayland, an electrician and spokesman for the International Brotherhood of Electrical Workers Canada, said in an interview Friday. “We’ve asked them to remove it completely and consult with all stakeholders.”

The firestorm over Morneau’s personal situation, including his ownership of a villa in France, is threatening to undercut Prime Minister Justin Trudeau’s core political message as a champion of the middle class, though Trudeau has a comfortable majority and an election is still two years away. Morneau has been retreating on a series of tax proposals targeting high earners as questions swirl about his own finances.

Organized Labor

Trudeau was elected in part on a pledge of increased consultation and transparency, and labor has generally backed many of his government’s core measures. Those include an expansion of the Canada Pension Plan and the repeal of two laws passed under the previous government that were seen as anti-union.

The finance minister rejected any suggestion that his ownership of Morneau Shepell shares put him in a conflict of interest. “I don’t agree with that position at all,” Morneau said during a press conference Thursday, adding that he followed recommendations from the country’s ethics watchdog to leave the room in certain meetings.

Morneau didn’t respond to a question on whether Trudeau’s Liberals would withdraw the legislation. However, bills favored by the government typically don’t sit idle in parliament for as long as this proposal has. “Bill C-27 hasn’t been brought to the House, it hasn’t been debated,” the finance minister told the Canadian Broadcasting Corp. later Thursday.

The Canadian Labour Congress, another major union group, called the bill “a dangerous and immediate attack on future and current retirees” in a letter to Morneau. The CLC’s president nonetheless rejected opposition suggestions the minister was in conflict. ”I don’t necessarily have any reason to believe he was going to personally benefit,” Hassan Yussuff said in an interview Friday.

Plan Details

The proposed law provides a framework for the establishment of target benefit plans, which are generally seen by labor as less preferable to defined benefit plans, which guarantee a monthly payout to retirees, and more preferable to defined contribution plans, which don’t guarantee a monthly payout.

Morneau Shepell worked closely with the government of New Brunswick to develop a shared-risk pension plan, similar to a target benefit plan, according to its website. The east-coast province was grappling with an unfunded public pension liability at the time.

Morneau himself called for legislation allowing target benefit plans, describing them as an antidote for the underfunding of defined benefit plans. “We need legislation enabling target benefit plans and shared risk plans in all Canadian jurisdictions,” he said, according to text of a 2013 speech on the company website.

The finance minister has faced allegations from opposition lawmakers that the bill, therefore, amounted to a conflict of interest. Morneau Shepell’s shares rose 4.4 percent in the week after the legislation was introduced, compared with a 0.2 percent decline for the benchmark S&P/TSX Composite Index over that period. However, the company has under-performed the index over the past year, with its shares rising 5.7 percent, compared with a 6.9 percent gain for the TSX, as of 12:30 p.m. Toronto time Friday.

Stock Holdings

While the issue has proven politically explosive, there’s no clear indication Morneau broke any ethics rules. The Canadian conflict of interest and ethics commissioner had advised Morneau he needed only the so-called conflict screen, run by his chief of staff.

Morneau held 2.25 million shares, including deferred stock units, as of March 3, 2015, according to the most recent regulatory filing that disclosed his stake. He said Thursday that he sold some shares after that filing and before taking office Nov. 4, 2015. “It was just that I wanted to do that from my personal planning standpoint,” he told the CBC.

It’s not entirely clear how he trimmed his holdings, or when. Deferred stock units aren’t the same as shares -- they’re usually a promise to pay an amount equivalent to the value of the common shares when exercised, and are an incentive for executives to support long-term growth in a company’s valuation.

That means an unknown portion of Morneau’s 2.25 million shares were DSUs, and it’s therefore unclear how many actual shares he ever held. Cathren Ronberg, a Morneau Shepell spokeswoman, said Friday in an email that “Bill has no DSUs.”

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE