Time to Pay the Piper: Pension Risk Sharing, Intergenerational Equity and Dissonance with the Conceptual Paradigm of Insolvency Law in Canada

Abstract

Defined benefit pension plans' funding and risk sharing arrangements do not fit comfortably into the conceptual paradigm of insolvency law's restructuring regime. The insolvency perspective is divided into pre- and post- insolvency proceeding time periods. However, payments of contributions to defined benefit pension plans cannot be so easily attributed to different time periods because of the nature of the risk-sharing arrangements in such plans. As a result, the insolvency courts' decisions concerning such contributions may have transgressed against two fundamental conventions of Canadian restructuring law.

This paper examines the reasoning applied by the courts in their rulings concerning the payment of pension contributions from the insolvent employer's assets following the commencement of a restructuring proceeding and how the distinction amongst those payments adopted by the courts is reflected in statutory provisions dealing with bankruptcies and receiverships. The paper will compare the rationales adopted in the courts with the actual effects of permitted payments into a defined benefit plan.

The paper argues that, due to the nature of the defined benefit plans, the payments permitted by the courts do not go far enough in achieving the statutory requirements they are intended to fulfill. In conclusion, some possible steps to address this issue will be considered including means to segregate funds paid for post-filing benefit accruals from the pre-filing claims of plan members.

Keywords: Canada, Pension plans, Bankruptcy, Insolvency Law