Bill C-228: Priority to pension plans in case of employer insolvency
On November 23, the House of Commons unanimously passed Bill C-228, An Act to amend the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act and the Pension Benefits Standards Act, which would give defined benefit (DB) pension plan members priority in the event of a company’s bankruptcy.
The Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act (CCAA) protect DB plans by prioritizing certain payments such as:
- employees’ salary contributions to the pension fund; and
- the normal costs that the employer is required to pay to the pension fund.
As these amounts are protected by the BIA and the CCAA, the courts can only approve a proposal, settlement or arrangement if the payment of these amounts is anticipated and if the court is satisfied that the employer is in a position to pay them. In the event of the employer’s bankruptcy, the BIA also protects these amounts through a security which ranks above all other securities except for certain ones, such as the security for unpaid wages.
In a nutshell, Bill C-228 moves to add special payments related to unfunded liabilities or solvency deficiencies to the list mentioned above, thereby significantly diminishing the risk that members’ benefits will be reduced should their pension plan be terminated.
With respect to federal pension plans, Bill C-228 amends the Pension Benefits Standards Act, 1985 to require the Superintendent to present an annual report to the Minister of Finance on the corrective measures taken or directed to deal with pension plans that do not meet the funding requirements.
Under the current wording of Bill C-228, amendments to the BIA and CCAA would apply to registered pension plans, whether they are regulated by federal or provincial legislation.
For existing pension plans, the transitional provisions provide that the proposed amendments will only apply as of the fourth anniversary of the day this Act comes into force.
Bill C-228 was passed by the House of Commons and received first reading by the Senate. It is currently awaiting second and third reading by the Senate before receiving Royal Assent.
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