Edited by Daniel Hayhurst

Contents

  • Asset Transfers, Plan Expenses and Fiduciary Duties
  • Changes to Canadian Pension Investment Rules


Asset Transfers, Plan Expenses and Fiduciary Duties
By Paul Dempsey and Dan Hayhurst

On October 7, 2010 the Supreme Court of Canada released its unanimous decision in Burke v. Hudson's Bay Co. The decision relates to the sale by the Hudson's Bay Company ("HBC") of its Northern Stores Division to the North West Company ("NWC") in 1987. In conjunction with this transaction, some 1,200 employees were transferred from HBC to NWC, and the parties agreed that NWC would provide a new pension plan that would provide these employees with benefits at least equal to those provided to them under the HBC plan. HBC agreed to transfer monies from its plan to the NWC plan sufficient to fund the defined benefits, but did not transfer any of the surplus assets in the HBC plan. This was the principal issue before the Court. In its decision, the Court reached the following conclusions:

  • Surplus transfer not required based on facts - HBC was not required, at law or under the plan/trust terms, to transfer surplus from the HBC plan to the NWC plan. In so concluding, the Court made it clear that its decision was based on the very specific facts before it, including that HBC clearly was entitled to the surplus in the HBC plan on plan termination. The Court made it clear that "the issue of surplus transfer when the pension plan documents indicate that employees are entitled to surplus on plan termination" is to be left to a future case where the issue arises. In the latter case, the Court indicated that plan beneficiaries would have "an equitable interest in the total assets of the fund", and left open the possibility that a different conclusion might follow.
  • Plan Expenses – The Court followed its own decision in Kerry, and determined that silence in the plan/trust documents as to who is to pay expenses does not mean that the employer is required to pay them.
  • No duty to fund actuarial surplus – The Court confirmed that plan beneficiaries do not have any right to compel surplus funding. Rather, their rights are restricted to ensuring that their benefits are adequately funded in accordance with statutory and plan requirements.
  • Fiduciary duty of even-handedness/class distinctions – The duty of even-handedness requires that where there are two or more classes of beneficiary, each class receives what the plan documents confer. However, there is no duty upon the plan administrator to confer benefits upon a class of beneficiaries where they have no rights to same under the plan documents. As such, conferring a benefit on one class to the exclusion of another - in this case, the retention of a surplus cushion in the HBC plan - could not be said to breach equitable principles where neither the retained nor transferred employees had an equitable interest in the plan surplus.
  • Contribution Holidays - At trial the issue of contribution holidays was addressed and settled in favour of HBC. Although that issue was not appealed, the Court confirmed that the trial judge was correct in concluding that HBC was permitted to take contribution holidays because the language in the pension plan documents provided that employer contributions were to be determined by an actuary.

In Ontario, proposed amendments to the Pension Benefits Act (Ontario) (the "PBA") set out in Bill 236 will require a portion of surplus to be transferred (as prescribed by regulation) in cases of a pension asset transfer on the sale of a business. This part of Bill 236 is not yet in force. Ontario also announced proposed changes to the PBA in August 2010 that include a proposal to restrict contribution holidays that would reduce a plan's transfer ratio below 105%, require notice of contribution holidays to members and beneficiaries, and require annual regulatory filings to confirm eligibility.


Changes to Canadian Pension Investment Rules
By Dan Hayhurst

There has been much debate over the past several years as to the continued appropriateness of the quantitative rules for investment that apply to most registered pension plans under applicable pension benefits standards laws in Canada. A recent article published in PrivateEquity@Gowlings discusses recent and pending changes to these rules.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.