Shortly (eight days) after a series of transactions under which
Imasco Inc.'s Shoppers Drug Mart business was transferred to
Shoppers Drug Mart Inc. (Shoppers) and then sold (share sale) to
institutional investors, Mr. Boys' employment with Shoppers was
terminated. As part of the transactions, Boys' retained his
accrued seventeen year pension under the Imasco pension plan and
joined a new successor pension plan established in 2000 for
executive employees by Shoppers (the Shoppers Plan). The Shoppers
Plan was designed under a "wrap around" arrangement to
provide substantially comparable benefits to those provided under
the Imasco plan.
Since Mr. Boys had belonged to the Shoppers Plan for such a
short period, his basic pension entitlement under that plan
qualified as a "small pension". While Mr. Boys elected a
deferred pension under the Imasco plan and wanted to make a similar
election under the Shoppers Plan, Shoppers insisted that he commute
his small Shoppers Plan pension to a lump sum cash payment.
Subsequently, in settlement of proceedings before the Financial
Services Tribunal (FST), Shoppers agreed to a partial wind-up of
the Shoppers Plan in connection with a broader post-sale
restructuring and Boys became entitled to "grow-in"
benefits valued at $89,087. Although this grow-in benefit exceeded
the small pension threshold, Shoppers refused Mr. Boys' request
for a deferred pension in respect of the grow-in entitlement,
arguing that the grow-in must be commuted and cashed out just like
the previous cash out of his small basic benefit. As an added
complication the FST was advised of the Canada Revenue Agency (the
CRA) position that the "Income Tax Act and Regulations do not
permit the additional growing-in benefits to be paid as additional
lifetime retirement benefits from a registered pension plan (RPP)
where the individual has already commuted and transferred the full
amount of his or her initial benefits out of the particular
Mr. Boys sought relief against Shoppers' decision from the
Superintendent of Financial Services, but the Superintendent issued
a Notice of Intended Decision (NOID) indicating his intention to
refuse to make such an order. Mr. Boys then applied to the FST,
challenging the Superintendent's NOID, and seeking to have his
grow-in entitlement under the Shoppers Plan treated as a deferred
The FST decided in favour of Mr. Boys and found
that while Shoppers' treatment of Mr. Boys'
"eight-day" basic pension as a small pension did not
contravene the Ontario Pension Benefits Act (PBA)
at the time (before declaration of the partial
wind up), once the grow-in benefit was added, it clearly no longer
qualified as a small pension. The FST stated:
[T]he partial wind up changed the
value of his pension benefits on termination, taking his
entitlement decisively out of the category of a 'small
pension'. Once that became clear, Shoppers was required to
offer him the options for his pension that came with his
recalculated entitlement, including the option of taking his
benefits as a deferred pension.
In particular, the Tribunal rejected Shoppers' and the
Superintendent's arguments that the PBA does not provide
members affected by a partial wind-up with a right to re-elect
pension transfer options in the circumstances where a pre-partial
wind up basic benefit commutation has occurred and stated:
The clear purpose and effect of s.
73(1)(a) is to change the date on which pension entitlement is to
be determined for affected plan members, from their individual date
of termination to the effective date of the partial wind up, in
order to ensure that their grow-in benefits and any other partial
wind up entitlements are taken into account.
With respect to CRA's position, the FST expressed the view
that while there may be difficulties unwinding the initial basic
benefit commutation it was not impossible and therefore should not
restrict the member's rights under the PBA. In setting aside
the Superintendent's NOID, the FST indicated that it remained
seized of the matter should the CRA not provide the necessary
approval for the re-payment of the small pension back into the
Case Comment: With the elimination of partial wind-ups
in Ontario the incidents of basic benefit elections being out of
sync with grow-in entitlements will soon be minimized, however,
this case is also interesting in light of the FST's decision
that the member's "eight day" Shoppers Plan pension
was to be treated separate and apart from his predecessor plan
pension for purposes of the small benefit characterization
notwithstanding s. 80 of the PBA. The FST rejected (rightly so in
my view) Mr. Boys' contention that his Shoppers Plan pension
should be treated seamlessly with his Imasco plan pension for
purposes of determining whether the small benefit commutation
provisions of the PBA applied. The FST held that while s. 80
preserves the benefits under the predecessor plan and counts the
period of predecessor plan membership for eligibility and
entitlement purposes under the successor plan, it does not affect
the amount of benefits earned under the successor plan for purposes
of the small benefit determination.
Ian McSweeney practises exclusively in the
field of pensions and employee benefits and advises clients on
pension plans, supplemental retirement arrangements, deferred
profit sharing plans and other employee and executive compensation
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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