Pensions and Benefits Protected in Insolvency

Summary#

This bill changes federal insolvency and pension laws to protect workplace pensions and group benefits when a company is in financial trouble. It gives unpaid pension shortfalls first claim on a bankrupt company’s assets, requires employers to keep contributing to group insurance during court protection, and lets the federal pension regulator act early when a plan is underfunded.

• Pension plan deficits get priority over most other creditors in bankruptcy and restructuring plans (Bankruptcy and Insolvency Act and Companies’ Creditors Arrangement Act amendments).
• Employers in insolvency cannot cut or stop group health, life, or accident insurance contributions during proceedings (new BIA and CCAA provisions).
• Termination and severance pay becomes a preferred claim in bankruptcy distributions (BIA s.136(1)(d.001)).
• The federal Superintendent of Financial Institutions may declare a plan’s funding “impaired,” require fast extra payments, and order member disclosure (Pension Benefits Standards Act, 1985 s.9(4)–(5), s.9.001, s.9.002).

What it means for you#

• Households and workers

  • If your employer goes bankrupt, unpaid severance or termination pay moves up in the payout line as a preferred claim (BIA s.136(1)(d.001)).
  • If you have a defined benefit pension, more of the company’s remaining assets must go first to cover any pension shortfall before most other debts (BIA ss.60(1.5), 81.5, 81.6; CCAA s.6(6)).
  • During insolvency proceedings, your group health, life, and accident insurance cannot be reduced or stopped until the process ends (BIA new section after s.62; CCAA new section after s.11.04).
  • You will receive notices if the regulator finds your plan is impaired, and about measures the employer must take (PBSA s.9(5), s.9.001, s.9.01).

• Retirees with pensions

  • Pension deficits have priority status in bankruptcy and must be addressed in restructuring plans, improving chances of full benefit payment from company assets (BIA ss.81.5–81.6; CCAA s.6(6)).
  • If the plan is terminated, amounts required to settle benefits are included in the priority claims (BIA ss.60(1.5), 81.5, 81.6; CCAA s.6(6)).

• Employers with defined benefit pension plans

  • In bankruptcy or a court‑approved restructuring, you must fund unpaid “special payments” for pension deficits and amounts owed on a plan termination before other unsecured debts (BIA ss.60(1.5), 81.5–81.6; CCAA s.6(6)).
  • While under BIA or CCAA protection, you cannot modify, cancel, or stop contributions to group insurance plans for employees or former employees (BIA new section after s.62; CCAA new section after s.11.04).
  • Outside insolvency, if the Superintendent determines plan funding is impaired or the administrator is at risk, you must make a “solvency special payment” within 30 days, with possible extensions at the Superintendent’s discretion (PBSA s.9(4)–(5), s.9.002(1)–(2)).
  • You must notify the Superintendent within 5 business days of decisions or events (such as share buybacks or dividends) that would increase the plan’s solvency deficiency beyond a set threshold tied to retained earnings and unsecured debt (PBSA s.9.001(2)–(3)).

• Lenders, bondholders, and trade creditors

  • Your recovery in bankruptcy or restructuring will be reduced when a company has an underfunded defined benefit plan, because specified pension claims rank ahead of most unsecured claims by law (BIA ss.81.5–81.6; CCAA s.6(6)).
  • Proposals and plans cannot be approved unless they provide for the required pension payments (BIA s.60(1.5); CCAA s.6(6)).

• Pension plan administrators

  • You must notify members, former members, and other beneficiaries within 30 days when the employer reports certain transactions to the Superintendent or when the Superintendent makes an impairment determination (PBSA s.9(5), s.9.01).

• Federal pension regulator (OSFI)

  • Gains authority to determine when plan funding is impaired or administration is at risk and to order funding and disclosure measures (PBSA s.9(4)–(5), s.9.002).

Expenses#

Estimated net cost: Data unavailable.

• No explicit federal appropriations or transfers are authorized in the bill text. It primarily changes creditor priorities and creates employer and regulator duties (Bill amendments to BIA, CCAA, PBSA).
• Employer funding obligations:
  • Requires payment of unpaid pension “special payments” and certain termination amounts as priority claims in insolvency (BIA ss.60(1.5), 81.5–81.6; CCAA s.6(6)). Data unavailable.
  • Requires a solvency special payment within 30 days when the Superintendent finds plan funding impaired, subject to possible extensions (PBSA s.9.002(1)–(2)). Data unavailable.
• Administrative costs for the regulator and compliance costs for employers and plan administrators are not quantified. Data unavailable.
• No official fiscal note identified. Data unavailable.

Proponents' View#

• Protects earned pensions by giving pension shortfalls priority in bankruptcy and requiring their payment in restructuring plans, improving recovery for retirees and workers (BIA ss.60(1.5), 81.5–81.6; CCAA s.6(6)).
• Prevents sudden loss of group health and life coverage during insolvency, reducing hardship for employees and retirees while courts review restructuring options (BIA new section after s.62; CCAA new section after s.11.04).
• Enables earlier regulatory action to shore up underfunded plans through quick solvency payments and mandatory disclosure of risky corporate actions (PBSA s.9(4)–(5), s.9.001, s.9.002).
• Improves transparency to plan members through required notices about funding risks and corrective measures (PBSA s.9(5), s.9.01).
• Elevates severance and termination pay in the payout order, which can reduce losses for laid‑off workers in bankruptcy (BIA s.136(1)(d.001)).

Opponents' View#

• Reduces recoveries for unsecured creditors, including suppliers and bondholders, when pension deficits exist, because specified pension claims move ahead in priority (BIA ss.81.5–81.6; CCAA s.6(6)). Magnitude by case. Data unavailable.
• May constrain successful restructurings by requiring continued group benefit contributions during proceedings, increasing cash outflows when liquidity is tight (BIA new section after s.62; CCAA new section after s.11.04).
• Imposes rapid funding requirements (30‑day solvency special payments) that could strain employers’ cash and threaten ongoing operations, though the Superintendent may extend schedules (PBSA s.9.002(1)–(2)).
• Creates compliance and reporting burdens, including 5‑day notices of dividends or buybacks that affect plan solvency, with potential for penalties if deadlines are missed (PBSA s.9.001(2)–(3)). Quantified costs not provided. Data unavailable.
• Could lead to legal and administrative complexity for plans not federally regulated, since the bill calculates certain priority amounts “as if” regulated by federal law for prescribed plans, which may require clear regulations to avoid disputes (BIA ss.60(1.5)(a)(iii)(A.1)–(A.2), 81.5(1)(c), 81.6(1)(c)).