As a result of today's difficult economic times,
many employers are evaluating their retirement programs and
considering how they can reduce benefits. The decision of the New
Brunswick Court of Queen's Bench in Quinn v. New
Brunswick (Minister of Finance) contains guidance on the
common law analysis to be applied when considering a potential
option to eliminate indexing.
The plan at issue was established by the province of New
Brunswick to provide pension benefits to certain unionized
employees. As a result of a substantial deficit in the plan, the
actuary advised the administrator that it would be necessary to
take measures to reduce benefits. The administrator applied to the
Court for direction with respect to the proposed amendments,
including whether it could amend the plan to reduce or eliminate
indexing benefits for active and retired members.
A unique feature of the plan was that it was not subject to
provincial minimum standards pension legislation and hence, the
issues had to be decided based on the common law. However, the case
is relevant to plans that are subject to pension legislation since
the amendment provision in the plan reflected the statutory
requirements regarding the inability to reduce accrued
The plan terms prohibited amendments that retroactively reduced
benefits earned by a member in respect of pensionable service prior
to the date of such amendment. The issue was therefore whether an
amendment eliminating indexing would violate this amendment
The Court held that the proposed amendments reducing or
eliminating indexing benefits for active members did not have the
effect of reducing vested benefits, because the indexing benefits
under the plan did not vest until members' termination,
retirement or death. As well, the Court interpreted the prohibition
on amendments that retroactively reduced benefits earned by a
member in respect of pensionable service prior to the date of such
amendment as a prohibition on amendments that reduce "benefits
acquired by the member at termination from the plan by the
accumulation of Pensionable Service". Accordingly, the Court
held that the proposed amendments reducing or eliminating indexing
benefits for active members were within the amending power under
the plan and therefore permissible.
The Court also considered whether the plan could be amended to
eliminate the cost of living adjustments for retired members, and
specifically whether retired members could be said to vest annually
in each indexing adjustment. The Court determined that such
benefits vest once notwithstanding that the indexing formula in the
plan did not necessarily give rise to an increase each year. It was
sufficient for vesting purposes that the increase be calculable in
accordance with the terms of the plan.
It is important to point out that the Court emphasized that it
came to its conclusion that the indexing benefits did not vest
until members' termination, retirement or death
"[c]onsidering the provisions of the Plan, the nature and
purpose of the COLA benefit as set out above and the intent of the
parties in enacting section 15.04(viii) of the Plan...". In
different circumstances, it would be open to a court to find that
benefits vest pre-termination.
Further, as I indicated, a unique factual aspect of this case is
that the plan at issue was not subject to pension standards
legislation. For most pension plans, applicable pension standards
legislation will impose additional restrictions related to plan
amendments that will also need to be considered.
Stephanie Kauffman advises on legal and
regulatory issues affecting all aspects of provincially and
federally regulated pension plans and other employee benefit
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.
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