What About Federal Pension Claims?

The Status of Pension Benefits Standards Act, 1985 and Pooled Registered Pension Plans Act Deemed Trust Claims in Insolvency1

The priority of claims against insolvent employers for amounts owing under provincially-regulated pension plans and, in particular, plans governed by the Pension Benefits Act (Ontario) (the "PBA")2, has received a great deal of analysis over the past few years. These efforts reached an at least temporary peak upon the release of the decision of the Supreme Court of Canada (the "S.C.C.") in Sun Indalex Finance, LLC v. United Steel Workers ("Indalex")3, in February 2013. One issue left untouched by Indalex and the analysis surrounding it, however, is that of the priority of claims for amounts owing under pension plans governed by the federal Pension Benefits Standard Act, 1985 (the "PBSA")4 or the new federal Pooled Registered Pension Plans Act (the "PRPPA")5. Despite the deemed trusts created by the PBSA and the PRPPA, and despite some questionable case law concerning the effect of the PBSA deemed trust in particular, in this writer's view the answer is quite simple: in an insolvency proceeding, PBSA and PRPPA claims do not benefit from any super-priority trust or security apart from the protection explicitly created by the Bankruptcy and Insolvency Act (the "BIA")6 and the Companies' Creditors Arrangement Act (the "CCAA")7.

Pension Protections under the BIA and CCAA

Priority charges in bankruptcy and receivership for a limited set of pension claims (under both PBSA plans and provincially-regulated plans) were created in July 2008 with the enactment of sections 81.5 and 81.6 of the BIA. Similar protection was added in September 2009 for BIA proposals and CCAA proceedings. Finally, with the coming into force of the PRPPA in December 14, 2012, protections for PRPPA amounts were added to the pension provisions in the BIA (for bankruptcy, receivership and proposals) and the pension provisions in the CCAA.

To take the example of receivership (and focusing on federal pensions), subsections 81.6 (1) and (2) of the BIA now read, in part, as follows:

"Security for unpaid amounts re prescribed pensions plan — receivership

81.6 (1) If a person who is subject to a receivership is an employer who participated or participates in a prescribed pension plan for the benefit of the person's employees, the following amounts that are unpaid immediately before the first day on which there was a receiver in relation to the person are secured by security on all the person's assets:

a) an amount equal to the sum of all amounts that were deducted from the employees' remuneration for payment to the fund;

b) if the prescribed pension plan is regulated by an Act of Parliament,

i) an amount equal to the normal cost, within the meaning of subsection 2(1) of the Pension Benefits Standards Regulations, 1985, that was required to be paid by the employer to the fund, and

ii) an amount equal to the sum of all amounts that were required to be paid by the employer to the fund under a defined contribution provision, within the meaning of subsection 2(1) of the Pension Benefits Standards Act, 1985,

iii) an amount equal to the sum of all amounts that were required to be paid by the employer to the administrator of a pooled registered pension plan, as defined in subsection 2(1) of the Pooled Registered Pension Plans Act; and

. . .

Rank of security

(2) A security under this section ranks above every other claim, right, charge or security against the person's assets, regardless of when that other claim, right, charge or security arose, except rights under sections 81.1 and 81.2 and securities under sections 81.3 and 81.4."

In terms of priority, pursuant to subsection 81.6(2), the pension claims charge ranks subordinate only to the BIA super-priorities in favour of unpaid suppliers, farmers (etc.) and employees. In the case of bankruptcies, BIA subsections 81.5 (1) and (2) have almost identical language to subsections 81.6 (1) and (2) with the exception that the charge in bankruptcy is also subordinate to statutory deemed trusts in favour of the Crown for source deductions (as preserved by subsection 67(3) of the BIA).

In terms of the scope of the charges, subparagraphs 81.5(1)(b)(i) and 81.6(1)(b)(i) refer us to subsection 2(1) of the Pension Benefits Standards Regulations, 19858, which, in turn, defines "normal cost" as "the cost of benefits, excluding special payments, that are to accrue during a plan year, as determined on the basis of a going concern valuation" (emphasis added). Sections 81.5 and 81.6 of the BIA therefore only create super-priorities for any deducted but unremitted employee pension contributions, any unpaid employer defined-plan or pooled-registered-plan contributions and any unpaid normal costs. There is no super-priority under the BIA for unfunded pension liabilities (whether they be direct claims or special payments ordered by the Office of the Superintendent of Financial Institutions).

The pension protections in restructurings are found in BIA subsection 60(1.5) and CCAA subsection 6(6), which prohibit a court from sanctioning any proposal or plan that does not ensure payment of the same pension amounts as are protected by the BIA in bankruptcies and receiverships. Pursuant to BIA subsection 65.13(8) and CCAA subsection 36(7), a court also cannot approve a going-concern sale unless the same pension amounts will be paid out of the sale proceeds (or otherwise)9.

The Federal Pension Deemed Trusts

The PBSA governs pension plans of employers that are federally regulated including, without limitation, those engaged in maritime shipping, aviation, broadcasting and banking, as well as plans of employers located in the Yukon, the Northwest Territories and Nunavut. Subsections 8(1)...

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