Jordan Fremont comments in Benefits Canada on C-228 (Pension Protection Act), a federal bill intended to provide defined benefit pension plan members with super-priority in the event of a plan sponsor’s insolvency. It passed in the House of Commons last week.
Some stakeholders warn the bill could have unintended consequences, resulting in the ordinary course of borrowing becoming more difficult, expensive or impossible for some DB pension plan sponsors and could result in organizations terminating their plans.
These concerns aren’t unfounded, Jordan says, noting it’s reasonable to conclude increased borrowing costs would follow from a change that results in super-priority for pension plan members.
Banks are going to take that additional risk into account and will either make it more costly to borrow or simply refuse to lend, neither of which will be a good outcome for employers that may need financing, Jordan says.
“The potential implication is distressed businesses can’t get financing and therefore can no longer continue to operate. Now, that’s the scenario that this bill is intended to address . . . in [giving] . . . pensioners extra protections. But it [also] means that a business that might otherwise successfully restructure and continue in operation would cease to continue, leaving current employees without jobs. The adverse implications, which we can reasonably assume, would follow from this change, could have negative consequences for the operations of businesses, their current employees and pensioners.”