Canada’s oldest retailer, Hudson’s Bay, is in serious financial trouble. On Monday, the company asked an Ontario court for permission to start liquidating all 80 of its stores, along with its Saks Fifth Avenue and Saks Off 5th locations in Canada. A judge held off on making an immediate ruling, but the situation is dire. The company has struggled with declining consumer spending, reduced foot traffic, and financial shortfalls that have left it unable to meet payroll or pay its landlords.
For employees, this means uncertainty—especially when it comes to their pensions. If Hudson’s Bay collapses, thousands of workers could be left wondering what happens to their retirement savings. The type of pension they have—whether a defined-benefit (DB) or defined-contribution (DC) plan—makes a massive difference in how protected they are.
What Happens to Employee Pensions in a Bankruptcy?
Hudson’s Bay employees fall into different categories when it comes to pensions. Some longtime employees may have a defined-benefit pension, while others are enrolled in a defined-contribution plan. Each has different levels of security in a financial crisis.
Defined-Benefit Pension Holders: At Risk if Underfunded
A defined-benefit pension promises employees a guaranteed payout in retirement based on salary and years of service. These plans are supposed to be backed by company contributions and investments. But if Hudson’s Bay goes under and the pension plan isn’t fully funded, retirees and future retirees could see their benefits reduced.
Many large company bankruptcies—Sears Canada being a notable example—have resulted in employees receiving only a portion of their promised pensions. If a DB plan is underfunded and the company liquidates, retirees become unsecured creditors. That means they must wait in line behind banks and other lenders when assets are distributed. Unfortunately, pensioners rarely recover their full benefits in these cases.
Defined-Contribution Pension Holders: More Secure but Market-Dependent
Employees with defined-contribution pensions have a bit more control. In a DC plan, workers contribute to an investment account, often with matching contributions from their employer. These funds are not tied to the company’s overall financial health—so if Hudson’s Bay shuts down, employees still have access to their retirement savings. However, the performance of these investments depends on market conditions, so there’s no guaranteed income in retirement like with a DB plan.
Can Employees Protect Their Retirement Savings?
For employees facing job loss, rolling over their pension into a more secure option is critical. Here are a few paths they might consider:
1. Commuted Value Transfer (For DB Pension Holders)
If Hudson’s Bay’s defined-benefit pension plan is winding down, employees might have the option to take their commuted value—a lump sum that represents the present value of their pension benefits. This money can be transferred into a Locked-In Retirement Account (LIRA), which provides investment flexibility while keeping funds locked for retirement.
However, commuted values often don’t match the full pension amount that would have been received over time, and there’s a risk of market fluctuations affecting the payout. Employees should carefully evaluate whether taking the lump sum is the best move.
2. Copycat Annuities (For DB Pension Holders)
For employees who want to replicate the security of their defined-benefit pension, a copycat annuity is an option. This allows retirees to use their commuted value to purchase an annuity from an insurance company that mimics the original pension’s structure. The benefit? Guaranteed monthly payments, just like a DB pension.
This is often the best strategy for those who don’t want to risk market fluctuations or outliving their savings. A copycat annuity ensures stability, especially in uncertain economic times.
3. Transferring DC Plan Savings to an RRSP or LIRA
Employees with a defined-contribution pension can roll over their funds into an RRSP or LIRA. This keeps their money growing tax-deferred until retirement. Unlike DB pension holders, they don’t have to worry about underfunding—just market performance.
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The Bigger Picture: Company Bankruptcies and Pension Security
Hudson’s Bay isn’t the first major retailer to face financial ruin. Sears Canada’s collapse left employees with slashed pensions, and other struggling companies have faced similar issues. The key takeaway? Employees must take charge of their retirement savings before a crisis hits.
For those affected by Hudson’s Bay’s financial struggles, the next few weeks will be critical. Whether the company finds last-minute financing or proceeds with liquidation, employees should act now to secure their pensions. Seeking financial advice, understanding rollover options, and considering a copycat annuity could mean the difference between financial security and an uncertain retirement.
If you or someone you know is facing pension decisions due to a layoff or corporate restructuring, speak to a financial advisor today to explore your options and protect your future.
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