Successor employer rules
The requirements with respect to the disposal of a business are covered, for the most part, in section 61 of The Pension Benefits Act, 1992 (the PBA).
A successor employer situation occurs when a predecessor employer disposes of all or part of its business, undertaking or assets to a successor employer.
There are four possible treatments of the funds accumulated and the benefits accrued under the predecessor employer's plan:
- Where the successor employer has a pension plan which some or all of the transferring members will be joining, assets and liabilities with respect to those members may be transferred to the successor employer's plan.
- The successor employer may assume the pension plan of the predecessor employer and keep it going for the members involved, but only if the entire business covered by the plan is taken over by the successor employer.
- Assets and liabilities may be left in the predecessor employer's plan with no further accrual of benefits, and entitlements arising only when the member terminates membership from the successor employer's pension plan. This would only apply where the predecessor's plan continues to exist for members not involved in the business disposal.
- A total or partial plan termination may be declared by the Superintendent of Pensions. A termination of a plan would occur when all or a part of a business is sold for those members whose employment is terminated as a result of the sale. It would occur for other plan members affected by the sale, if:
(a) the successor employer has no pension plan which the members may join,
(b) the successor employer's plan is voluntary and some members choose not to join, or
(c) the successor employer has a pension plan which the members must join, but the successor employer does not assume the liability for the predecessor employer's plan, and the predecessor employer wishes to terminate the plan as it relates to the accrued benefits of the affected members.
Subsection 61(3) of the PBA requires that continuous service with both employers must be counted for purposes of plan eligibility under the successor employer's plan and for purposes of vesting and locking-in under either employer's plan.
Without the prior written consent of the Superintendent of Pensions, the assets of a pension plan may not be transferred from one plan to another or released on plan termination.
For more information about successor employers, read the Successor Employer Situations bulletin.