Tuesday, December 1, 2009

Pension priority in bankruptcy (2)

Further to my last blog, here's a few points raised by colleagues:

  • Defined benefit plans are deferred wages and should be afforded the same protection as other deferred wages, i.e. they should be fully protected.
  • If pensions are given priority upon a future bankruptcy, the sponsor's borrowing costs would increase about 5 basis points - a negligible amount.
  • There is at least one plan that has implemented a Pension Security Trust similar to what has been proposed by the Canadian Institute of Actuaries. Contributions to the Trust add to security of plan members but are refundable if it turns out they were not needed.
Interesting points, and worth exploring further.

1 comment:

  1. Jim - The Pension Security Trust is a good idea; however, we need to resolve the underlying root cause of why we need to set up such trusts. Simply put, if pension trusts were not dealt with under Trust law and employers had right to surpus, then they would be no need to have Pension Security Trust. Our focus should be to lobby to re-define pension trust laws and other archaic pension regulations. I believe this is a lofty task and not easily achievable. It is a task similar to having uniform pension regulations across Canada!