On the heels of recent high-profile pension insolvencies such as Nortel, a patchwork of confused and ill-conceived remedial legislation in 2010 is at various stages of consideration.
Bill C-501 has been criticized as potentially accelerating the demise of defined benefit pension plans by causing a re-pricing of bonds issued by employers facing higher financing costs, which, in turn, would negatively impact portfolios holding such bonds.
The bill was referred to the House of Commons Standing Committee on Industry, Science and Technology. Its parallel bill, Bill S-214, was referred to the Senate Standing Committee on Banking, Trade and Commerce. Both propose to amend the Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act (CCAA) to require that not only a pension plan’s normal outlays be contributed but also “any amount considered to meet the standard for solvency determined in accordance with Section 9 of the Pension Benefits Standards Regulations, 1985.”
The issue is whether these words refer, and give super-priority, to the whole of a plan’s unfunded liability or only to deficiency payments that are due. In a bankruptcy, however, this reference would cause the whole of the unfunded liability to become payable by virtue of the addition to the Pension Benefits Standards Act Section 29(6.4) by the Budget Implementation Act (Bill C-9), introduced five days after Bills C-501 and S-214. Section 29(6.4) provides that on the “bankruptcy of the employer, the amount required to permit the plan to satisfy any obligations with respect to pension benefits as they are determined on the date of termination is payable immediately.”
Non-pension benefits
As for non-pension benefits, Bill S-216 was considered by the Senate Standing Committee on Banking, Trade and Commerce in late November, and Bill C-487 is at first reading. Bill S-216 proposes to amend the BIA and CCAA so that the proposal or plan of arrangement under a restructuring proceeding provides for the payment of unpaid liabilities of insured or self-insured long-term disability (LTD) benefits plans “to the fund.” Also, in the event of a bankruptcy or receivership, the plan is to be continued until the beneficiaries turn 65 “by the assignment to a financial institution authorized to establish group disability plans” of amounts paid and to be paid “into the fund.” A number of these concepts, though, will need to be refined.
Bill C-487 covers a broader group of benefits plans—from LTD to healthcare benefits plans—and provides a super-priority equal to the actuarial value of disability, medical, dental, vision and hearing benefits, as well as lost-pension accruals.
The Retirement Income Bill of Rights
Finally, Bill C-574, the Retirement Income Bill of Rights, is an odd assortment of vague policy statements. According to this bill, a “retirement income plan” is “a pension plan, a retirement savings plan, a plan of insurance or a savings vehicle, whether funded or not.” But a retirement income plan is not “a personal savings account that is not recognized as a retirement savings arrangement or plan of insurance under the Income Tax Act” (ITA). The bill imposes a prudent professional standard of care on administrators and states that every individual has the right, and should have the same opportunity, to accumulate pension income regardless of age, sex, national origin or occupation. The individual is also entitled to information and disclosure of material risks and to investment advice from an advisor with no conflict of interest.
Most strikingly, Bill C-574 provides that federal law governing the establishment or operation of, or applying to, a retirement income plan is to “promote individuals’ access to training in financial literacy and retirement planning” and should be interpreted “to promote and give effect to the principles and rights” set out in that bill. However, this bill doesn’t entirely make sense in the context of the ITA, which is federal law.
While these bills are still at various stages of the legislative process, plan sponsors should keep them in mind and follow their progress closely.
Lorraine Allard is a partner in the tax group and a pension, benefits and compensation expert with McCarthy Tétrault. lallard@mccarthy.ca
This article first appeared in the January issue of Benefits Canada.