On November 23, 2022, the House of Commons passed Bill C-228, aimed at protecting members’ pensions in the event of corporate bankruptcy and insolvency.
This bill aims to give “super priority” to potential claims of defined benefit pension plans in the event of bankruptcy or insolvency of a company responsible for funding such a plan.
It should be noted, however, that it must also be adopted by the Senate before it can be officially proclaimed and take effect. This bill is the result of similar work or bills that were previously introduced by the Conservative Party, the New Democratic Party (NDP), and the Bloc Québécois.
Situation with respect to bankruptcy and insolvency
Currently, the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act protect defined benefit pension plans to some extent by prioritizing the repayment of certain amounts, such as:
- Amounts deducted from employee compensation for payment into the pension fund (employee contributions); and
- Normal costs related to current service, which the employer is required to pay into the pension fund.
This means that a court can only approve a proposal, settlement, or arrangement if the payment of these amounts is anticipated, and the court is satisfied that the employer will be able to pay them.
In addition, in the event of the employer’s bankruptcy, the Bankruptcy and Insolvency Act also guarantees these amounts by way of a security interest, which has priority over any other right, except for certain rights, such as the security interest pertaining to unpaid wages.
Changes resulting from Bill C-228
A major change relates to the inclusion of the total special payments related to an unfunded liability or solvency shortfall to the existing list, thereby contributing significantly to reducing the risk that members’ benefits will be reduced should their pension plan be terminated.
The proposed amendments would apply to both federally registered pension plans as well as those under provincial jurisdiction.
For existing plans, the proposed amendments will not apply until after the fourth anniversary of the bill’s entry into force.
It should be noted that Bill C-228 also includes an amendment to the Pension Benefits Standards Act, 1985, with respect to federal pension plans. The amendment will ensure that the Office of the Superintendent of Institutions (OSFI) will present an annual report to the Minister of Finance on the corrective measures taken or ordered to remedy situations where pension plans do not meet funding requirements, in an attempt to prevent, upstream, any potential funding issues these pension plans could face.
Now that the motion for third reading has passed, Bill C-228 is being sent to the Senate, which may also propose amendments. If passed without amendment, it will then receive Royal Assent and officially become law. Otherwise, the two chambers of Parliament will instead have to agree on the same version of the legislative document.
However, given the unanimous endorsement of Bill C-228 by all political parties in the House of Commons, potential amendments from the Senate seem very unlikely.
Link for Bill C-228: