MPs advance bill to prioritize pension plan members in case of corporate insolvency

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After a decade of false starts, a federal bill to give pension members top priority when a company’s plan runs low on bankruptcy has passed a unanimous vote in the House of Commons, pushing long-debated protections for pensioners closer to becoming law.

MPs on Wednesday voted 318-0 in support of Bill C-228, a private member’s bill sponsored by Conservative MP Marilyn Gladu, sending it to the Senate for review. If passed, it would change bankruptcy and bankruptcy laws to give pensioners a higher priority for unfunded liabilities in private-sector, defined-benefit company pension plans.

This would place pension liabilities in front of secured and unsecured creditors, improving the likelihood of members becoming insolvent. Similar bills have been introduced since 2010 and since 2004, but neither has gained much traction. Last year, a similar bill introduced by Bloc Quebecois MP Marilyn Gill was considered by the federal finance committee, but never came to a vote.

Even the current bill, which has won support from all parties, has vocal opponents. This has sparked a debate over whether over-priority is a vital protection for pensioners, or a misguided policy that may inadvertently hasten the demise of the very pension plans whose value it seeks to protect. Those arguments will now go to the Senate, which could consider amendments to the bill.

At a press conference Wednesday morning before the House vote, Ms. Gladu said it had been a “very long journey” to get the bill to this point, urging MPs to “do the right thing for Canadians who pay into their pensions.” And they deserve what they were promised.”

Supporters of the bill say it would prevent companies from shifting the burden of unfunded liabilities in defined-benefit pension plans — which promise members fixed monthly benefits after retirement for as long as they live — onto members in the event of bankruptcy. This will help ensure that pensioners will retire much closer to the full value of their earnings.

Lawyers point to prominent insolvencies such as Sears Canada Inc. and Nortel Networks Corp. that slashed pension benefits for former employees. The bill could change company behavior, they say, by pushing employers to keep plans fully funded instead of backing out of their obligations when times get tough.

“It quite simply makes the pension obligation a real obligation,” Mike Powell, president of the Canadian Federation of Pensioners, said in an interview. “Instead of being at the back of the line, pensioners now move to the front.”

But critics contend that giving pension plan members a super-priority would make it less attractive to employers to maintain those pension plans. Banks and other creditors who lend to companies and provide goods and services will be ranked lower in the bankruptcy process, which can increase borrowing costs or make financing difficult when companies need to raise capital for operating funds and new investments.

That could create an incentive for some companies that have defined-benefit plans — a popular type of benefit that’s declining, with only 9 percent of private-sector employees having one, compared with 20 percent two decades ago — to try and avoid that extra liability. turn them off

“I think the banks, if they’re acting prudently, are going to assess the risks and they’re either going to charge more for that or lend less,” said Andrea Bochter, chair of pensions and benefits at law firm Osler Hoskin. Harcourt LLP, who opposed the bill on behalf of the Association of Canadian Pension Management (ACPM), testified before a committee of parliamentarians last month.

Critics also argue that restructuring plans that could save a company from going out of business and preserve jobs for current employees would be difficult to negotiate. Ms. Boctor said restructuring large industrial employers such as Algoma Steel Inc., Stelco Inc., would not have been possible if pension deficits had been a higher priority. A lender looking for a restructuring financing “was less likely to lend knowing they would be behind on the pension deficit,” he said.

On Wednesday, ACPM, which advocates for pension plan sponsors and administrators, published an open letter to MPs and senators saying the bill “contains numerous flaws and has serious consequences for existing private sector DB plans.” If enacted, companies with DB pension plans would “simply terminate their existing plans or convert them to retirement savings plans that would be less beneficial to plan members,” the letter said.

The Canadian Federation of Pensioners and other supporters of the bill, including the Canadian Labor Congress and prominent labor unions, dismissed those concerns. Defined-benefit pension plans are already in decline, Mr. Powell said, but with retirees a high priority, “companies are going to make different decisions and have better-funded pensions.”

MPs advance bill to prioritize pension plan members in case of corporate insolvency

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