1 7 October 2009 The pension plan of an insolvent company This Newsletter Express is addressed to insolvency professionals 1 who have a mandate in regard to an insolvent company that offers its workers a supplemental pension plan that is subject to the Act. Such plan may be offered by a private sector, municipal or university employer or a parapublic sector employer whose activities are under provincial jurisdiction. A pension plan may constitute a significant portion of the employer s financial commitments. Whether the company has made a proposal, is bankrupt within the meaning of the Bankruptcy and Insolvency Act or is under the protection of the Companies Creditors Arrangement Act, the insolvency professional must take into account the pension plan and make decisions that are in accordance with the requirements of the Act. To that end, he or she must be acquainted with certain basic principles of the Act with regard to pension plans. Since the situation of each company is different, the insolvency professional should contact the Régie des rentes du Québec at the beginning of his or her mandate to obtain information adapted to the situation. That can make it possible to avoid undesirable effects for the employer, the plan s members 2 and beneficiaries 3 as well as for creditors and the insolvency professional. Inaction, a bad decision or even a delay in acting may, for example, increase plan costs, result in losses for the plan members or for the company s creditors or result in lawsuits. 1. Either a trustee, a person appointed as monitor by the Court or a chartered insolvency and restructuring professional (CIRP). 2. This group is composed of the active members, for whom contributions are paid into the pension fund, and the non-active members, including the retirees. 3. A beneficiary is a person other than a member who has rights under the plan, for example, a spouse who receives a surviving spouse s pension following a member s death.
2 Some basic principles When an insolvency professional begins his or her mandate for a company, he or she must become familiar with the parameters of the pension plan, including its type (defined benefit or defined contribution), its commitments, the contributions to be paid, and the presence of surplus assets or a deficit. He or she must also work in collaboration with the plan administrator. In the case of a defined benefit plan, the administrator will provide the insolvency professional, on demand, the plan s actuarial valuation, which will contain most of this information. As mentioned, the insolvency professional must be familiar with the plan s basic operating principles and the funding of pension plans that are subject to the Supplemental Pension Plans Act. A brief description of these principles follows: 1. Trust patrimony A pension fund that receives contributions 4 is a trust, that is, distinct property that does not belong to the employer or to the plan members. It can only be used for purposes related to the plan. Since the pension fund is excluded from the property that makes up the employer s assets, it is protected in the event of a company s insolvency or bankruptcy. 2. Plan termination The employer may decide to terminate a plan at any time, unless prevented from doing so by the provisions of a collective agreement. Bankruptcy entails termination of a plan, unless the purchaser of the company s assets assumes the obligations of the bankrupt employer with respect to the plan s members. In the absence of such a purchaser, the Régie will terminate the plan. If several employers participate in the same multi-employer plan and one of them goes bankrupt, the bankrupt employer must withdraw from the plan, unless a purchaser assumes that employer s obligations with respect to the plan. 4. Contributions are paid by the employer or by the employer and the plan members. 7 October / 6
3 3. Utilisation of surplus assets While a plan is still on-going, any surplus assets must remain in the pension fund and may be used only for plan purposes. When a plan is terminated, the surplus assets, if any, are allocated to the members or to the employer or shared between them. The Act contains specific rules for surplus allocation. The employer cannot unilaterally appropriate surplus assets. 4. Plan funding Regardless of whether a plan is a defined benefit plan or a defined contribution plan, the employer is bound by contract to periodically pay a contribution into the pension fund for the purpose of procuring a retirement income for employees. In a defined contribution plan, the employer s obligation is limited to making the employer contribution that must be paid (for example, an amount corresponding to 5% of a member s salary). The member s retirement income will depend on the total amount accumulated (employer contributions, member contributions and interest). In a defined benefit plan, however, where the amount of the pension is set in advance according to a specified formula, the employer 5 assumes the risk related to fully funding benefits. An actuary periodically determines the sums that will have to be paid into the pension fund. In addition to the regular employer contribution, the employer must make up any deficit by making special payments called amortization payments. If an employer has difficulties in meeting its financial commitments, a plan can be amended to reduce them on a prospective basis. As explained above, it is also possible to terminate the plan, or in the case of a multi-employer plan, to withdraw that employer. In some cases, the Court has the power to authorize a temporary suspension of amortization payments. However, the requirements of the Supplemental Pension Plans Act must be met unless the Court expressly exempts the employer therefrom. 5. In a member-funded pension plan (MFPP), the members collectively assume the obligation to fund the plan. 7 October / 6
4 Amendment of a plan Under certain conditions, the Act allows amendments to a plan to reduce the employer s future commitments, particularly in the context of a global restructuring of a company that is under the protection of the Companies Creditors Arrangement Act. In such case, a reducing amendment must be registered with the Régie. Plan termination and employer withdrawal If a pension plan is terminated, and it has a deficit, the deficit must be made up by the employer. However, where a company is insolvent or in bankruptcy and a deficit cannot be fully paid, the plan administrator is required, under the Régie s supervision, to reduce the benefits of the plan s members (including retirees) and the beneficiaries. The same rules apply where several employers participate in a pension plan that has a deficit and one of them withdraws because of bankruptcy. If that employer is unable to pay the deficit related to its members and beneficiaries, their benefits will be reduced. Temporary suspension of amortization payments Where a company is placed under the protection of the Companies Creditors Arrangement Act, the Court may authorize a temporary suspension of amortization payments. Such a suspension of payment will not release the employer from its obligations. The actuarial valuation carried out following the suspension with determine the revised amount of the amortization payments that will have to be made to cover the entire plan deficit. The solvency professional will thus have to take this into account in his or her restructuring plan. 5. Protection of contributions in the event of bankruptcy Several amendments to the Bankruptcy and Insolvency Act that concern pension plans came into force on 7 July Some sums due to a pension plan are now secured claims and therefore have a priority rank: member contributions and additional voluntary contributions that have been collected; employer contributions due but unpaid. 7 October / 6
5 6. Employer substitution If a company is sold and the purchaser agrees to assume the former employer s obligations, the purchaser will be substituted for the former employer. The purchaser thus assumes responsibility for the plan s obligations, including any deficit. The plan administrator must file with the Régie an application to register an amendment to that effect. It s better to ask the Régie An insolvency professional may consider various options when a company is insolvent. Here s an example: Suppose a trustee in bankruptcy temporarily maintains the activities of a bankrupt company while looking for a purchaser. Should the trustee: pay into the pension fund all the required contributions (member and employer contributions and, if any, amortization payments)? pay only the member contributions? pay the member and employer contributions into an account separate from the plan s pension fund? make no payments at all? consider other options? An analysis of the particular situation of the company and the plan will guide the trustee. He or she must be prudent since some options could have undesirable effects or even expose him or her to liability. In this context, it is important to obtain all the pertinent information so as to determine the option most appropriate to the situation. Even if the company is under the protection of the Bankruptcy and Insolvency Act or the Companies Creditors Arrangement Act or is in bankruptcy, it must meet its obligations with respect to the pension plan. That means that the insolvency professional must come to terms with the various requirements of the Supplemental Pension Plans Act during the company s restructuring or liquidation. He or she must also act with openness and avoid any ambiguity. This is particularly important since in such 7 October / 6
6 situations, the plan members will have questions about the impact of the employer s insolvency on their pension plan. It is in the insolvency professional s interest to contact the Régie to ensure he or she develops strategies adapted to the situation that will make it possible to meet the insolvency professional s objectives and the requirements of the Supplemental Pension Plans Act. By doing so, the chances of successfully carrying out his or her mandate will be increased and he or she will avoid contentious situations. General information Information on how pension plans are impacted by bankruptcy or bankruptcy protection measures is available on the Régie s Web site at and To receive news concerning supplemental pension plans, you can subscribe to the Liaison RRQ News infoletter (www.rrq.gouv.qc.ca/liaisonrrq/). It s easy, and it s free! Writers: Gina Brassard and Linda Vaillancourt Translator: K.-Benoît Evans, C.Tr. This document is available on our Web site. (Version originale française disponible sur notre site Web.) For more information, contact our: Information Officer Direction des régimes de retraite Régie des rentes du Québec Case postale 5200 Québec (Québec) G1K 7S9 Telephone: Québec region Toll-free Fax: Internet: 7 October / 6
THE ITC BUY OUT BOND BROCHURE www.independent-trustee.com If you were the member of an occupational pension scheme, leaving or have left employment, or your pension scheme is being wound up, it is time
Financial Services Commission of Ontario Commission des services financiers de l Ontario SECTION: INDEX NO.: TITLE: APPROVED BY: Investment Guidance Notes IGN-001 Buy-In Annuities for Defined Benefit Plans
Version 4.2 This document provides some additional information to help you understand the financial planning concepts discussed in the SOA in relation to. Important information This document has been published
A Guide to Life Insurance for Small Business SUN LIFE FINANCIAL For a small business owner, group life insurance and qualified plans may not be adequate to protect the business from unforeseen risks or
Teachers Retirement System of Georgia member s guide Welcome to the Teachers Retirement System of Georgia The Teachers Retirement System of Georgia (TRS) is pleased to provide you with this Member s Guide.
Group Term Life Insurance Certificate For Active Employees and Retirees State of Michigan m Employee Group Term Life Certificate of Insurance Minnesota Life Insurance Company - A Securian Company 400 Robert
Defined Contribution Plan Summary Plan Description Defined Contribution Plan Summary Plan Description Listed below are telephone numbers and website and correspondence addresses for some of the resources
AUTOMATIC ENROLLMENT 401(k) PLANS for Small Businesses Automatic Enrollment 401(k) Plans for Small Businesses is a joint project of the U.S. Department of Labor s Employee Benefits Security Administration
Verschoyle House 28/30 Lower Mount Street Dublin 2 Tel 01 613 1900 Fax 01 631 8602 Email email@example.com www.pensionsboard.ie The Pensions Board has prepared this booklet to help people understand
Department of Health & CMS Medicare Manual System Human Services (DHHS) Pub. 100-6 Financial Management Centers for Medicare & Medicaid Services (CMS) Transmittal 12 Date: OCTOBER 18, 2002 CHAPTERS REVISED
University of Chicago Group Life Insurance Summary Plan Description January 1, 2010 University of Chicago Group Life Insurance Page 1 Table of Contents Your Group Life Insurance Benefits... 3 Participating
Insurance in your super Fact sheet Information in this fact sheet is current as at 1 July 2015 Contents Overview 1 What is Life cover? 5 How your Life cover works 6 When is your insured benefit payable?
For commercial customers and their advisers only Group Income Protection Technical Guide Reference BGR/4019/OCT12 Contents Page Its aims Employers your commitment Risk factors How does the policy work?
GAO United States General Accounting Office Report to Congressional Requesters March 2003 TAX ADMINISTRATION Federal Payment Levy Program Measures, Performance, and Equity Can Be Improved GAO-03-356 March
A GUIDE TO RETIREMENT ANNUITY TRUST SCHEMES ( RATS ) IN GUERNSEY TABLE OF CONTENTS INTRODUCTION... 3 WHAT IS A RETIREMENT ANNUITY TRUST SCHEME?... 3 THE TRUSTEES... 4 APPROVAL... 4 TRANSFERS FROM OTHER
Introduction for people setting up an SMSF Setting up a self-managed super fund What you need to know to set up a self managed super fund NAT 71923-11.2013 NAT 72579-03.2013 NAT 71454 03.2013 COVER ICON
T s And C s. General terms and Effective conditions April 2012 Effective April 2015 It s Ours. a What s Inside Here. General provisions 1 1. What are these terms about? 1 2. When can our terms and product
ADVISOR USE ONLY LEVERAGING A LIFE INSURANCE POLICY A GUIDE FOR LAWYERS, ACCOUNTANTS AND INSURANCE ADVISORS Using life insurance as collateral for personal and business planning Life s brighter under the
Business Su c c e s s i o n Pl a n n i n g w i t h C Co r p o r at i o n s Producer Guide For producer use only. Not for distribution to the public. 1 Business Succession Planning with C Corporations With
Guide to business insurance. 1 Important information This document has been prepared by The Colonial Mutual Life Assurance Society Limited ABN 12 004 021 809, AFSL 235035 (CMLA). CommInsure is a registered
SunAdvantage Administration Guide for Sun Life Financial-administered group plans Use this guide if Sun Life Financial administers your plan members records and prepares your billing statements. Our guides
Glossary Active member In relation to an occupational pension scheme, a person who is in pensionable service under the scheme. Acronyms LDI Liability-driven investment ONS Office for National Statistics
This publication has been developed by the U.S. Department of Labor, Employee Benefits Security Administration (EBSA). To view this and other EBSA publications, visit the agency s Website at dol.gov/ebsa.