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National consultations on enhancing retirement security in Canada

On November 22, 2018, the federal government released a consultation paper inviting public comment on proposed approaches for enhancing security in the retirement income system. The consultation was promised in the 2018 federal budget in response to recent cases of company insolvencies, which have disrupted pension, wage and benefit entitlements for workers and retirees. The consultation paper proposes varied options relating to federal pension legislation, corporate governance and bankruptcy and insolvency law.

Pension Options

The following options would affect pension plans regulated under the federal Pension Benefits Standards Act, 1985 (the PBSA).

  1. Solvency reserve account (SRA): to eliminate pension deficits, a defined benefit (DB) pension plan sponsor could remit solvency special payments into an SRA. Once the plan is in surplus, the employer could be permitted to recover portions of their special payments from the SRA, however such withdrawals would not be permitted to create a funding deficit.
  2. Pension funding relief criteria: an employer seeking DB solvency funding relief from the Minister of Finance could be required to comply with certain specified criteria or conditions (e.g., a condition to prohibit dividend payments while under pension funding relief).
  3. Transfers to self-managed accounts on plan termination: in order to avoid permanently reduced benefits when annuities are purchased from a DB plan that is terminated in an underfunded position, retirees could have an additional option to transfer their reduced pension, as a lump sum, to a personally managed locked-in saving plan. Some losses could be recouped by future investment returns; however, this option may also expose retirees to even further loss derived from investment risks in the market.
  4. Clarify benefit entitlements on plan termination: some plan sponsors have proposed amendments that make benefits conditional at plan termination, for example by providing indexing upon plan termination only if sufficient assets are available in the pension plan. Given that it has been suggested that current legislation is unclear, the PBSA could be amended to explicitly state that pension benefits cannot be made conditional based upon the continued operation of the plan. In the alternative, the PBSA could be amended to provide a DB pension plan the option to offer different benefits under different circumstances, taking into account plan-specific objectives such as sustainability issues.

Governance Options

The following options would apply to corporations registered under the Canada Business Corporations Act (CBCA).

  1. Restrictions on corporate behaviour: dividend payments, share redemptions and executive compensation packages could be restricted when an employer has a large pension deficit.
  2. Increased corporate reporting and disclosure requirements: in addition to prescribed annual reports provided to shareholders by corporations subject to the CBCA, the CBCA could be amended to require these corporations to prepare a further report on policies that relate to the interests of workers and pensioners, in order to strengthen corporate social responsibility toward these two groups.

Insolvency Options

These options would affect any corporation going into bankruptcy or restructuring under the Bankruptcy and Insolvency Act (BIA) or Companies’ Creditors Arrangement Act (CCAA).

  1. Enhanced “look-back” period: under the BIA, a court may set aside dividend payments or share redemptions made by an insolvent corporation within 1 year of the bankruptcy (the “look-back period”). An enhancement to the look-back period could allow a court to also set aside executive bonuses and compensation increases. Notably, the proceeds of such funds could be used toward funding pension obligations; however, this option could create uncertainty for shareholders or executives that could be subject to retroactive claw-backs.
  2. Enhanced transparency in the CCAA process: the CCAA could be amended to: a) limit the scope of initial orders at the outset of proceedings to increase the participation of pensioners and employee groups; b) enhance transparency by requiring creditors to disclose their real economic interests; and c) impose an express duty of good faith on all parties to the restructuring.


The proposed changes would vary in impact. The proposed changes to the PBSA would only affect federally regulated pension plans, while the proposed corporate governance changes would only affect corporations governed by the CBCA. Moreover, the proposed changes affecting the BIA and CCAA could potentially affect any corporation sponsoring a DB plan that goes into bankruptcy or reorganization. The deadline for submission of public comments is December 21, 2018.

News & Views - December 2018 (PDF)