Significant improvement in the protection of pension plans in the event of corporate insolvency

Good news for defined benefit pension plan members. On April 27, 2023, Bill C-228 received Royal Assent and therefore came into force.

Bill C-228 amends the Bankruptcy and Insolvency Act (BIA) and The Companies' Creditors Arrangement Act (CCAA) to ensure priority payment of claims relating to unfunded liability or solvency deficiency of pension plans in the event of bankruptcy proceedings.

The amendments apply to pension plans registered in all Canadian provinces or under the federal legislation.

Prior to Bill C-228 coming into force, the following amounts were protected for a company-sponsored pension plan under the BIA or CCAA:

• amounts that were deducted from employees' pay for remittance to the plan (employee contributions);
• the normal costs (current service cost) that the employer is required to remit to the plan.

Protection was granted in the form of a “super-priority” according to which:

• BIA proposals or CCAA arrangements cannot be approved by a court unless they provide for the payment of the above amounts;
• in the case of bankruptcy, the sums are considered to have priority over other entitlements, barring certain exceptions, including notably a security on unpaid wages.

Bill C-228 expands this super-priority by also including the following amounts:

• the sum equal to the total of the special payments that the employer is required to make to the plan to liquidate an unfunded liability or a solvency deficiency;

• any amount required to liquidate any other unfunded liability or solvency deficiency of the plan.

However, it should be noted that a provision provides that the additional protection only applies after a transitional period of 4 years, that is from April 28, 2027.

The coming into force of Bill C-228 is great news for private sector defined benefit pension plan members. This follows many years of discussions concerning increased protection during business insolvency.