How your DB pension is protected

All contributions made to a defined benefitBenefit Money, goods, or services that you get from your workplace or from a government program such as the Canada Pension Plan.+ read full definition (DB) plan (both yours and your employer’s) are held in trustTrust An account set up to hold assets for a beneficiary. A trustee manages the assets until the beneficiary reaches legal age.+ read full definition for the benefit of all plan members. So when you contribute to a DB plan, your contributions are safe.

If an employer goes bankrupt

If an employer goes bankrupt, it can’t continue making contributions and the pensionPension A steady income you get after you retire. Some pensions pay you a fixed amount for life. Others save up money for you while you are working. You use that money to create income after you retire.+ read full definition plan may not have enough money to pay for the promised benefits (called an “underfunded” plan).

Underfunding is often related to the investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition performance of plan contributions. For example, a fully funded plan can quickly become underfunded when its investments decline sharply in value, such as during an economic crisis or recession.

Because of the high cost that’s involved, employers are allowed to take several years to restore their plans to full funding. If they go bankrupt before this is completed, the plan will remain underfunded. Plan members and retirees may receive less than 100% of their promised pension.

Pension protection fund

Ontario is the only jurisdiction in Canada with a pension protection fund that can help when an employer goes bankrupt. The fund guarantees specified benefits up to $1,000 per month for members who meet certain age and service criteria (with some exclusions). Learn more about this fund and your pension rights.

Fast fact

Your and your employer’s DB plan contributions are held in a trust fund. They are not held by your employer.

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