The Association of Canadian Pension Management and the Pension Investment Association of Canada are among the organizations saying proposed amendments to the federal Bankruptcy and Insolvency Act could negatively impact defined benefit pension plans.
In an open letter to the House of Commons standing committee on finance, the ACPM and the PIAC — along with the Canadian Bankers Association, the Canadian Chamber of Commerce and the Canadian Manufacturers and Exporters — said the proposed amendments could decrease credit availability, potentially creating a disincentive for employers to establish or maintain DB plans, knowing their access to credit would be constrained compared to maintaining a defined contribution pension plan.
Read: Bankruptcy and insolvency bill will negatively affect struggling DB pensions, says ACPM president
The legislation could also lead to more onerous reporting requirements imposed on companies maintaining DB plans to ensure their solvency is monitored, stemming from the difficulties creditors face in determining exposure to pension deficiencies, which are based on the availability of actuarial valuations.
“Actuarial valuations represent a snapshot in time [and] are based on actuarial assumptions, which change based on economic conditions and establish theoretical liabilities,” said the letter. “Given these transparency limitations, more rigorous reporting requirements will be imposed.”
The letter also noted there’s a limited amount of published work by policy-makers or researchers analyzing the actual historical Canadian experience with pension plan terminations from insolvencies and the ultimate impact on plan members. “The creation of a super-priority in bankruptcy would have broad systemic implications for companies offering defined benefit plans and, in the absence of data, it is difficult to assess potential benefits in terms of additional pension security. We believe the debate around this complex issue would benefit from such analysis and encourage the committee to act as a catalyst for this work.”
The organizations also suggested that the committee study alternative mechanisms to achieve the goal of pension security for Canadians, such as amending the legislation to allow for the appointment of a pension insolvency trustee to wind down the pension plans of insolvent employers or merge the pensions of insolvent companies with large multi-employer pension plans to maintain these plans on a going-concern basis.
They also proposed amending the Income Tax Act to provide plan members of insolvent DB plans with access to variable payment life annuities and advanced life deferred annuities.
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