FTR Now
Bill C-228 Offering Pension Protection in Bankruptcy Receives Royal Assent
Date: May 3, 2023
On April 27, 2023, Bill C-228, the Pension Protection Act, received Royal Assent and is now law. As a result, pension plan deficits will be required to be paid in priority to most other creditors, including secured creditors, during bankruptcy and insolvency proceedings.
In this FTR Now we consider this development and its implications for employers.
New Priorities
Bill C-228 was first introduced as a private member’s bill in early 2022.
Prior to Bill C-228, the Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act (CCAA) gave priority to certain pension amounts in the event of bankruptcy proceedings, including:
- amounts deducted from an employee’s remuneration for payment to the pension fund
- the normal cost that was required to be paid by an employer to the pension fund
- amounts that were required to be paid by an employer to the pension fund under a defined contribution provision
Bill C-228 amends the BIA and the CCAA to give priority to the following additional amounts (Additional Amounts) in the event of bankruptcy proceedings:
- special payments determined in accordance with section 9 of the federal Pension Benefits Standards Regulations, 1985 (PBSA) that were required to be paid by an employer to the pension fund to liquidate an unfunded liability or a solvency deficiency
- amounts required to liquidate any other unfunded liability or solvency deficiency of the pension fund (determined, in the case of a CCAA proceeding, as of the day the proceeding commences)
The new priority for pension deficits applies not only to plans registered under the federal PBSA, but also to plans registered in other jurisdictions.
There is a four-year transition period built into Bill C-228 for existing pension plans, meaning the new pension priority will not take effect until April 27, 2027. Pension plans introduced after April 26, 2023, the day before the day on which Bill C-228 comes into force, will be subject to the pension priority rules immediately.
Annual Report
Bill C-228 also amends the PBSA to require the tabling of an annual report to the Minister of Finance (the Minister) on the success of pension plans in meeting funding requirements under the PBSA and the corrective measures taken or directed to be taken to deal with any pension plans that are not meeting the funding requirements.
It is unclear whether these more specific reporting requirements would result in any new obligations on employers. The federal pension regulator has an existing obligation under the PBSA to table an annual report to the Minister, and the PBSA already requires custodians to notify the superintendent if an employer does not remit its expected contributions, who could then take a variety of steps to address the issue.
Impact on Employers
It is expected that the new “super priority” created by Bill C-228 could have a significant impact on employers who sponsor defined benefit pension plans. It raises concerns, for example, about the continued ability of employers with defined benefit pension plans to borrow money, either before or during insolvency, and whether the pension plan is fully funded at the time of the lending event or not.
There are also a number of questions raised by the wording of Bill C-228, such as whether it applies to multi-employer pension plans and jointly sponsored pension plans, and the requirement to contribute Additional Amounts calculated under the federal PBSA when the plan is registered in another jurisdiction where special payments are calculated differently. It is also unclear why, if a plan is fully funded on a solvency basis but not on a going concern basis, the going concern deficit would be given priority. Regulations are expected and may clarify some of these outstanding questions.
Should you have any questions or require further information, please contact any member of Hicks Morley’s Pensions, Benefits and Compensation Group.
This post has been updated from its earlier version
The article in this client update provides general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Hicks Morley Hamilton Stewart Storie LLP and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Hicks Morley Hamilton Stewart Storie LLP. ©
