Asset Transfers, Plan Expenses and Fiduciary Duties
Changes to Canadian Pension Investment Rules
Asset Transfers, Plan Expenses and Fiduciary
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
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
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
PrivateEquity@Gowlings discusses recent and pending changes to
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