Personal Finance

If company goes bankrupt, what happens to Group RRSPs?

  • Last Updated:
  • Jul 20th, 2017 9:21 pm
Member
User avatar
Nov 24, 2013
231 posts
54 upvotes

If company goes bankrupt, what happens to Group RRSPs?

Hey all,

Sorry if this is the wrong forum, but it was the closest I could think for the question. Feel free to move it to another forum if it's better suited elsewhere.

I read a few articles about the ongoing bankruptcy with Sears. These ones involved the actor Mike Myers' brother, Peter, and those laid off by Sears as part of their restructuring. The CBC article mentioned how he and others were laid off without severance, while The Star dove a bit deeper to cover how their pension might be at risk since employees have to get in line and are behind other creditors.

This made me wonder for people who have a Group RRSP. If their company goes bankrupt or applied for the bankruptcy insolvency like Sears, what happens to the employees who contributed to the Group RRSP? Is there a chance they lose out on what their company contributed over the years? Is there also a chance they lose what they themselves contributed?
For example, if an employee gives $100 every two weeks to their Group RRSP and their company matches 50% making a total of $300 every month between both the company and the employee, will that person lose out on all the money contributed in the Group RRSP (both theirs and the company's) or just what the company contributed to the Group RRSP?

Thanks in advance! I'm a bit of a layman with this and curious.

http://www.cbc.ca/news/business/sears-m ... -1.4199261

https://www.thestar.com/business/2017/0 ... in-ad.html
39 replies
Deal Guru
User avatar
Mar 23, 2008
13006 posts
10009 upvotes
Edmonton
Depends what you mean by "group RRSP's". In the past, when working for companies that offered matching RRSP contributions, the money was invested directly in a TD (in my case) RRSP, and the company matched it at the time. From that point on, I was the only one who had control over all the RRSP money; it was separate from the company or any co-worker funds. So if that's what Sears did, any RRSP's should be safe.

C
Deal Addict
Feb 29, 2012
2654 posts
1461 upvotes
Richmond
If the money is in your personal RRSP already, it's safe. It would be safe even if you declared bankruptcy, courtesy of government regulation.

If you're talking about a company fund that contributes a matching amount to your RRSPs, or a company pension fund that matches your RRSPs, then no, it's not safe. You're an unsecured creditor.
Last edited by Faith24 on Jul 14th, 2017 10:30 am, edited 1 time in total.
Newbie
Mar 8, 2017
10 posts
6 upvotes
CNeufeld wrote: Depends what you mean by "group RRSP's". In the past, when working for companies that offered matching RRSP contributions, the money was invested directly in a TD (in my case) RRSP, and the company matched it at the time. From that point on, I was the only one who had control over all the RRSP money; it was separate from the company or any co-worker funds. So if that's what Sears did, any RRSP's should be safe.

C
That sounds about right, for me how it is, we use Manulife, so I put in 100 bucks, they match it up to a certain %. When I look into my Manulife account it just shows one amount so I don't think the Company would have the ability to take it back...
Deal Addict
Feb 29, 2012
2654 posts
1461 upvotes
Richmond
MichaelB424414 wrote: When I look into my Manulife account it just shows one amount so I don't think the Company would have the ability to take it back...
The important thing is whether your Manulife account has your individual name only on it, and whether it's officially an RRSP in your name. What makes if a "Group" account if so?
Deal Guru
User avatar
Mar 23, 2008
13006 posts
10009 upvotes
Edmonton
Faith24 wrote: The important thing is whether your Manulife account has your individual name only on it, and whether it's officially an RRSP in your name. What makes if a "Group" account if so?
Personally, I haven't heard of a "group RRSP". That doesn't mean they don't exist, but I've just never run across one. How would they keep track of all the tax information for people and reporting to CRA? It would be a nightmare, with people being added and removed, investing different amounts, etc.

C
Member
User avatar
Dec 20, 2012
202 posts
118 upvotes
Brampton
Faith24 wrote: The important thing is whether your Manulife account has your individual name only on it, and whether it's officially an RRSP in your name. What makes if a "Group" account if so?
I have my GROUP RRSP with manulife and it's all in my name so if my company were to collapse, my RRSP contributions that are already posted would be safe. I think there is a 30 day period from paystub to it appearing on my manulife account
Deal Fanatic
Jan 21, 2014
8520 posts
6262 upvotes
for me, my contribution goes to RRSP, my company's contribution goes to DPSP. I supposed my company still have control over DPSP but not my RRSP right?
Member
User avatar
Nov 26, 2014
359 posts
153 upvotes
Quebec
mkl38s wrote: for me, my contribution goes to RRSP, my company's contribution goes to DPSP. I supposed my company still have control over DPSP but not my RRSP right?
Same for my GF at her work, they are with Industriel Alliance. Curious to see an answer as well for the DPSP part
Deal Expert
Aug 22, 2011
41802 posts
30056 upvotes
Center of Universe
A business that goes bankrupt still has money and assets and it you'll likely have to fight in court to get what is owed.
The scenario you are describing, is what the ex-Nortel employees are going through.
Member
User avatar
Nov 24, 2013
231 posts
54 upvotes
CNeufeld wrote: Depends what you mean by "group RRSP's". In the past, when working for companies that offered matching RRSP contributions, the money was invested directly in a TD (in my case) RRSP, and the company matched it at the time. From that point on, I was the only one who had control over all the RRSP money; it was separate from the company or any co-worker funds. So if that's what Sears did, any RRSP's should be safe.

C
Personally, I haven't heard of a "group RRSP". That doesn't mean they don't exist, but I've just never run across one. How would they keep track of all the tax information for people and reporting to CRA? It would be a nightmare, with people being added and removed, investing different amounts, etc.

C[/quote]

I think "Group RRSPs could be an Ontario thing. It's still a pension plan. I know for mine, like yours, I'm the only one that has access my money and the way it's invested. It's also only in my name, but I can only withdraw it when I quit or fired. The company makes a certain level of contribution (the legal minimum I think is $0.50 for every $1.00 by the employee). I'm not sure what Sears had, but it sounds like the company was having problems topping up their pension plan and owed a couple hundred million to it, so their employees were putting in their money but Sears wasn't officially able to match it all. At least that's what it sounds like to me. I'm guessing the money in the Sears plan that's actually there is the employees and safe, but now they'd have to become a creditor to get the rest of the few hundred million that was promised to them. I think, but I could be wrong.
vkizzle wrote: A business that goes bankrupt still has money and assets and it you'll likely have to fight in court to get what is owed.
The scenario you are describing, is what the ex-Nortel employees are going through.
This was the first thing that came to mind and didn't really go well for Nortel employees, so hopefully it turns out better for Sears staff.
Member
User avatar
Nov 24, 2013
231 posts
54 upvotes
l69norm wrote: I think you are looking for "defined benefit" vs. "defined contribution" pension plans ?

In a DB plan, the money is in the employers name. If the employer goes belly up, you are SOL

In DC, the money is in your own name


http://m.lifehealthpro.ca/news/weakness ... 27904.aspx
Thanks! Very helpful! It sounds like this is going to be even worse for Sears employees as the company goes through its bankruptcy process. I know for myself, thankfully, I'm in a DC plan. It sounds like DB plans are better for employees when they're investing since employers contribute more, but DC plans are safer in the long run. I think in the current corporate environment, I'd chose safe.
Deal Expert
Aug 2, 2001
18946 posts
10527 upvotes
vkizzle wrote: A business that goes bankrupt still has money and assets and it you'll likely have to fight in court to get what is owed.
The scenario you are describing, is what the ex-Nortel employees are going through.
Here is an article for any that are interested in how Nortel worked out:
http://business.financialpost.com/perso ... 71bdc82061
http://www.cbc.ca/news/canada/ottawa/no ... -1.3804516

It looks like Ontario has a special fund to help with all this:
In Ontario Nortel pensioners received millions of dollars from the government's pension guarantee fund but still saw their pensions cut to 60 per cent of their original amount, with other benefits like health insurance eventually cut off, according to Meunier.
Sr. Member
Feb 1, 2010
872 posts
173 upvotes
Gregorich wrote: Hey all,

their pension might be at risk

https://www.thestar.com/business/2017/0 ... in-ad.html
This isn't quite correct in the context of your question. The pension and it's holdings will still be held in trust for its beneficiaries, the employees, just like a group RSP. The difference is the future guarantee.

In a defined benefit plan, the company guarantees a certain income in the future. If the pension funds are insufficient, the company needs to put more money in. A bankrupt company no longer lives up to that guarantee, so, in effect, the defined benefit pension is now like a defined contribution pension, or group RSP.

For example, if the investment in your Group RSP went to zero (maybe you were 100% in Sears stock?) you have no retirement funds left. Your company isn't obligated to make you whole, unlike the defined benefit plan. And in Sears' case, they aren't obligated anymore due to the bankruptcy designation. The funds they have legally put aside to fund the pensions up to now, though, are protected.
Deal Fanatic
Nov 24, 2013
6479 posts
3344 upvotes
Kingston, ON
mkl38s wrote: for me, my contribution goes to RRSP, my company's contribution goes to DPSP. I supposed my company still have control over DPSP but not my RRSP right?
p0nk1n wrote: Same for my GF at her work, they are with Industriel Alliance. Curious to see an answer as well for the DPSP part
DPSPs have a vesting period. After you're vested, then the company can't claim back the DPSP from your account, even if it's insolvent. The funds are already administered by a plan sponsor (like IA, Manulife, Desjardins, Sun Life, etc.), and if the company DPSP was winding up (and you and others had your employment terminated) they'd work you through moving the funds into a LIRA, etc.. They'd stay locked-in in whatever vehicle they're moved to, but they're still yours.
Member
User avatar
Nov 24, 2013
231 posts
54 upvotes
TrevorK wrote: Here is an article for any that are interested in how Nortel worked out:
http://business.financialpost.com/perso ... 71bdc82061
http://www.cbc.ca/news/canada/ottawa/no ... -1.3804516

It looks like Ontario has a special fund to help with all this:
In Ontario Nortel pensioners received millions of dollars from the government's pension guarantee fund but still saw their pensions cut to 60 per cent of their original amount, with other benefits like health insurance eventually cut off, according to Meunier.
Thanks! A couple of good reads. I appreciate it!
quatchi wrote: This isn't quite correct in the context of your question. The pension and it's holdings will still be held in trust for its beneficiaries, the employees, just like a group RSP. The difference is the future guarantee.

In a defined benefit plan, the company guarantees a certain income in the future. If the pension funds are insufficient, the company needs to put more money in. A bankrupt company no longer lives up to that guarantee, so, in effect, the defined benefit pension is now like a defined contribution pension, or group RSP.

For example, if the investment in your Group RSP went to zero (maybe you were 100% in Sears stock?) you have no retirement funds left. Your company isn't obligated to make you whole, unlike the defined benefit plan. And in Sears' case, they aren't obligated anymore due to the bankruptcy designation. The funds they have legally put aside to fund the pensions up to now, though, are protected.
If I understand correctly, basically what's in the plan right now is safe but those employees have little chance of seeing any future additions? In this case, the $267 million Sears still owed the plan, according to The Star article. Since there's that shortfall, it sounds like retirees - both present and future - of Sears will be receiving less than they anticipated. Basically the employees got the raw deal from what was promised by Sears since they can't, and don't have to anymore, cover that $267 million.
Sr. Member
Feb 1, 2010
872 posts
173 upvotes
The pension was like 110M in deficit, with the other money being health care costs.

Again, the deficit occurs when the actuary does their calculations and says the funds are short of their necessary levels. Since 2008, and the low interest rate environment, most defined benefit plans have had yearly deficits as loses and low yields have eroded the growth expectations which the employer needs to top up. If it was a group RSP, the plan members would be in the same boat (low yields) except that there would be no actuarial deficit as there were no guaranteed payouts.

Sears employees now are in the exact same boat as group RSP holders. They get the contributions and any tax sheltered growth. They no longer get the guarantee (2%/yr of best 5 years average salary X up to 40 years of service (80% of best 5 years salary yearly guaranteed for life)).
Member
User avatar
Nov 24, 2013
231 posts
54 upvotes
quatchi wrote: The pension was like 110M in deficit, with the other money being health care costs.

Again, the deficit occurs when the actuary does their calculations and says the funds are short of their necessary levels. Since 2008, and the low interest rate environment, most defined benefit plans have had yearly deficits as loses and low yields have eroded the growth expectations which the employer needs to top up. If it was a group RSP, the plan members would be in the same boat (low yields) except that there would be no actuarial deficit as there were no guaranteed payouts.

Sears employees now are in the exact same boat as group RSP holders. They get the contributions and any tax sheltered growth. They no longer get the guarantee (2%/yr of best 5 years average salary X up to 40 years of service (80% of best 5 years salary yearly guaranteed for life)).
Thanks! This is a great summary. I also keep forgetting the shortfall of $267 million is both the pension and health care costs.
Deal Guru
May 29, 2006
10930 posts
3663 upvotes
Mike15 wrote: DPSPs have a vesting period. After you're vested, then the company can't claim back the DPSP from your account, even if it's insolvent. The funds are already administered by a plan sponsor (like IA, Manulife, Desjardins, Sun Life, etc.), and if the company DPSP was winding up (and you and others had your employment terminated) they'd work you through moving the funds into a LIRA, etc.. They'd stay locked-in in whatever vehicle they're moved to, but they're still yours.
FYI Alberta removed the vesting period, money is yours now.

Top