By Joel Kranc
It’s not often a private member’s bill gets a lot of attention or notoriety in the public domain, but Bill C-288, already passed by the House of Commons, is doing just that.
Generally, Canadian insolvency statutes give so-called “super-priority” to certain liabilities during insolvency proceedings. However, up until this bill was passed, pension entitlements and benefits did not enjoy this super-priority. Now, if a company goes bankrupt, any pension deficits or owing becomes a higher priority even to secured creditors.
“It’s very unusual to have pension deficits be higher priorities than secured creditors,” explains Todd Saulnier, president of the Board of the Association of Canadian Pension Management (ACPM) and principal and senior investment consultant with Mercer.
“In some ways, that’s a game-changer,” he adds. “Think about lenders; the rates they charge are based on the probability they are going to get paid in the event of a stressful situation. And this bill, all of a sudden, overrides their contract or expectation, then that will have an impact on the debt … and on the conditions of any future loans.”
He adds that this type of legislation could make it harder for companies to restructure if pension debts are super-priority over secured lenders. “The bill could cost companies more, and potentially put them at greater risk of falling into difficulty, not being able to secure the financing to help them out if ever they face a stressful situation.”
The Opposition Speaks Out
In addition to the ACPM, other economic organizations, including the Canadian Bankers Association, the Canadian Chamber of Commerce, the Canadian Manufacturers and Exporters and the Pension Investment Association of Canada, oppose the bill.
In November 2022, representatives of those organizations noted their opposition to the bill at the Federal government’s standing committee on finance. ACPM Chief Executive Officer, Ric Marrero, was quoted in the press as saying: “What we found disappointing was the lack of due diligence on the part of the subcommittee, [which] didn’t really have much interest in hearing about alternatives to super-priority.”
At that subcommittee, others, such as Andrea Boctor, partner, chair, Pensions & Benefits with Ossler LLP offered alternative solutions: “We outline solutions that parliamentarians could consider instead … An example is allowing for the appointment of a special pensions insolvency trustee to manage or merge pension assets and liabilities based in part on the Stelco model, where pensioners received 100% of their pension, notwithstanding a large windup deficit when the company filed for CCAA protection.
“Other examples are asset pooling based on the great success of the model deployed in Quebec for members of insolvent company plans, or variable and advanced life annuities, new tools recently added to the Income Tax Act,” Boctor added. “These solutions do more with the dollars that are there than simply rush to buy an annuity and crystalize a deficit.”
At that same committee, members of the retirement community such as Alex Grey, senior director, Fiscal and Financial Services Policy with the Canadian Chamber of Commerce, said the legislation would negatively affect Canadian business.
“To start, Bill C-288 would increase the cost of credit for Canadian businesses that offer DB (defined benefit) plans,” he noted. “Struggling companies would have greater difficulty securing loans, thereby undermining a core objective of insolvency legislation: to encourage successful restructurings that allow companies to continue employing Canadians, thereby mitigating the social and economic consequences of liquidations. Additionally, DB plan sponsors would reassess continuing to offer DB plans, thereby harming retirement security across the country.”
He also stressed that the bill would add to the cost of doing business in Canada by imposing stringent reporting requirements on companies maintaining DB plans and that the timeline of the bill would cause hardships on companies’ pension cycles.
It seems clear where the DB trend is headed. In Ontario, the country’s largest province, the number of pension plans continued to trend lower in 2021, according to the Financial Services Regulatory Authority of Ontario, with a reduction of 69 single employer pension plans (SEPPs) and 1 multi-employer pension plan (MEPPs).
That trend is similar to other areas where costs are motivating a faster wind down of plans. If the bill passes the Senate, there may be an even faster decline as companies re-evaluate the costs of borrowing and who has priority during insolvency.
