What happens to a federally regulated pension plan when the business is sold?

The Pension Benefits Standards Act, 1985 is a federal Act. It applies in respect of pension plans, and it defines a pension plan by reference to employees employed in included employment. Section 30 deals with the sale of a business by an employer that is a party to a pension plan. Provincial pension rules are a separate matter; the Ontario rule is on this page.

Who the Act reaches

Under section 4(4), included employment means employment, other than excepted employment, on or in connection with the operation of any work, undertaking or business that is within the legislative authority of the Parliament of Canada. Employment and Social Development Canada separately lists the industries and workplaces the Canada Labour Code regulates, such as air transportation, banks, and radio and television broadcasting. That list is about the Code, not this Act. If you are unsure whether a plan falls under this Act, ask the plan administrator.

When the buyer does not assume the benefits

Section 30(1) applies where three things are all true. The employer sells, assigns or otherwise disposes of all or part of its business or undertaking, or all or part of the assets of its business or undertaking. An employee of that employer becomes an employee of the person acquiring the business, undertaking or assets, called the successor employer. And the successor employer does not assume responsibility for the accrued benefits of the employer’s plan. In that case the employee continues to be entitled to the benefits provided under the employer’s plan for the period of membership in that plan, without further accrual.

What applies either way

Section 30(2) applies where the first two events in section 30(1) occur, whether or not the successor employer assumes responsibility for the accrued benefits. For the purposes of the employer’s plan, the employee’s membership is deemed not to have ceased because of those events. For determining the period of employment for any eligibility condition of the successor employer’s plan, and whether the employee is entitled to a benefit under a plan of either employer, the period of employment is deemed to include employment with both employers without any interruption.

What to ask

• Ask the plan administrator whether the plan is registered and which Act governs it. The Canada Revenue Agency notes that many registered pension plans are also subject to federal or provincial benefits standards legislation.
• Ask the seller whether the buyer intends to assume responsibility for the accrued benefits.
• Ask the plan administrator and a pension lawyer how accrued benefits or assets would move, if they are to move at all.