One more province has joined the ranks of extending creditor protection to registered savings plans. Alberta’s Civil Enforcement Amendment Act came into force on October 1, 2009 (the “Act”). It applies to registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), deferred profit sharing plans (DPSPs) and registered disability savings plans (RDSPs).
The new law is a win for entrepreneurs and professionals, whose retirement savings are largely, if not exclusively, held outside traditional pension plans. Pension plans are generally granted safe-harbour from judgment enforcement by their constating statutes. Registered savings plans, on the other hand, were open to seizure prior to the recent amendment. The new Act levels the playing field and encourages savings by enhancing protection for those who are responsible for their own retirement savings.
Life insurance products with a designated beneficiary continue to be protected from creditors’ claims under the Alberta Insurance Act. However, the inclusion of all RRSPs, RRIFs, DPSPs and RDSPs as exempt plans allows business owners to expand their choice of investment vehicle without accepting additional creditor risk.
The Act is also a move toward harmonizing Canadian law of enforcement against savings plans. Even within Alberta, the prior law resulted in differential treatment not only due to the type of savings vehicle, but also the process by which a creditor sought to enforce its claim.
The Bankruptcy and Insolvency Act (Canada) has excluded RRSPs and RRIFs from a debtor’s exigible property in bankruptcy proceedings since 2007. However, those plans were still open to seizure through other civil enforcement mechanisms, which are governed by provincial law. Alberta’s Civil Enforcement Act is now more consistent with the federal bankruptcy regime. It remains to be seen whether Alberta’s exemption of DPSPs and RDSPs (which are divisible on bankruptcy) will create a new dichotomy.
We have yet to achieve uniformity of the law throughout Canada. While Alberta is now in the majority, Ontario, New Brunswick and Nova Scotia have not yet extended creditor-protection to registered plans. (In Ontario, Bill 96: Registered Retirement Savings Protection Act has been carried over to the current session of Parliament.)
Registered plans are not completely safe from creditors. The amendment does not apply if enforcement proceedings were commenced prior to October 1, 2009. Property in registered accounts remains subject to matrimonial property claims.
In addition, payments out of an RRSP, RRIF or DPSP to the plan holder are still open to seizure and garnishment. Minimum exemptions are allowed, similar to the exemptions available upon garnishment of employment earnings. Payments from a registered disability savings plan to the beneficiary of the plan are, however, not subject to garnishment at all.