Canada Passes Pension Bankruptcy Protection Bill

Canada’s parliament has passed a bill that will give defined benefit pension plans “super priority” among creditors if the company sponsoring a plan goes bankrupt. The bill now goes to Canada’s governor general for royal assent, which has not been withheld in modern history, to make it law.

“An Act to amend the Bankruptcy and Insolvency Act,” the Companies’ Creditors Arrangement Act, Bill C-228, ensures that “claims in respect of unfunded liabilities or solvency deficiencies of pension plans and claims relating to the cessation of an employer’s participation in group insurance plans are paid in priority in the event of bankruptcy proceedings.”

Bill C-228, which was passed by the House of Commons and the Senate, puts defined benefit plan members ahead of secured and unsecured creditors in respect to unfunded obligations. Under the bill, priority goes to the unfunded pension liability of private sector, single-employer, defined benefit pensions when a company becomes insolvent. The company will have to declare bankruptcy and either give priority to pension payout or transfer funds into the pension plan to make it solvent. The bill will also require a public annual report on the solvency of the pension fund prepared by the fund manager.

“This landmark legislation will protect millions of Canadians who rely on defined benefit pensions for their financial security in retirement,” Michael Powell, president of the Canadian Federation of Pensioners, said in a release.

“Had C-228 been the law, the pensioners of Sears, Nortel, Groupe Capitales Médias, White Birch, and others would not have lost a third or more of their pensions,” the Canadian Federation of Pensioners’s release stated.

However, a statement from the Pension Investment Association of Canada last month “strongly disagree[d] that the super-priority approach proposed in Bill C-228 is the appropriate method to achieve pension security,” adding that it “could have significant impacts on pensions and businesses, and pose a threat to the sustainability of defined benefit pension plans.”

In November 2022, the Association of Canadian Pension Management released an an open letter stating that the bill “has numerous flaws and has serious consequences for existing private sector DB plans.”

According to the ACPM, the bill would lead to the termination of many plans “due to increased costs and the burden of borrowing faced by plan sponsors.”