In Professional Institute of the Public Service of Canada v. Canada, the Supreme Court of Canada (SCC), was asked to examine whether plan members had an equitable interest in the defined benefit surpluses in three federal government pension plans. The SCC held that plan members did not have an equitable interest in the plans' surpluses under the plans and that the employer did not owe a fiduciary duty to plan members with respect to surplus. Further the SCC held that the plan sponsor was not unjustly enriched by its application of surplus amounts and there was therefore no basis for the imposition of a constructive trust.
This decision is interesting as it involved an analysis of the considerations applicable to statutory pension plans. While the case may specifically apply to a limited number of statutory public sector plans, the analysis of the SCC underlying some of the issues will have broader application.
The plans in question (covering federal public sector employees, members of the Canadian Forces, and members of the RCMP) were not subject to collective bargaining. Contributions made to the plans were held in the Consolidated Revenue Fund. Prior to April, 2000, the contributions were reflected as credits to the "Superannuation Accounts" established for each plan. As a result of the introduction of Bill C-78 in 1999, on and after April 1, 2000 contributions were deposited to a pension fund that replaced the Superannuation Accounts for post-March, 2000 service. Bill C-78 also required to federal government to debit from the Superannuation Accounts certain amounts in excess of a specified surplus ceiling.
For many years prior to April, 2000, the federal government "amortized" the actuarial surplus in the Superannuation Accounts, which had the effect of reducing the government's annual budget deficit (or increasing the annual budget surplus). After March 31, 2000, pursuant to Bill C-78 the federal government debited amounts from the Superannuation Accounts in excess of the surplus ceiling. As a result of these actions, the federal government amortized a total of $18.6 billion during the 1990s, and debited a further $28 billion from 2001 to 2004.
The plan members (through a number of unions and associations) brought an action claiming, in essence, that they had an equitable interest in the balances in the Superannuation Accounts as of March 31, 2000 and that Bill C-78 did not authorize a reduction from the Superannuation Accounts of any amount after March 31, 2000 in which members have an equitable interest without compensation. They claimed that the Superannuation Accounts should be credited with all amounts of surplus that had been amortized or debited by the federal government. The lower courts (i.e., the Ontario Superior Court of Justice and the Ontario Court of Appeal) dismissed their actions, and the plan members appealed to the SCC.
The SCC agreed with the lower courts that the Superannuation Accounts were merely accounting records used to track pension-related payments and to establish the government's future pension liabilities, not segregated pools of assets. There was therefore no property in respect of which plan members can have a legal or equitable interest. The plan members' entitlements were limited to the defined benefits set out in the plans. As the SCC noted: "In exchange for their contributions, and with each year of pensionable service, employees gain a legal entitlement to a future benefit. That is the nature of this defined benefit plan".
With respect to whether the government owed a fiduciary duty to plan members with respect to actuarial surplus, the court identified four characteristics that establish an ad hoc fiduciary relationship:
- The fiduciary has scope for the exercise of some discretion or power;
- The fiduciary can unilaterally exercise the power or discretion so as to affect the beneficiaries' legal or practical interests;
- The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power; and
- The fiduciary, either expressly or impliedly, has undertaken to act in the best interests of the beneficiaries.
The SCC concluded that there was no ad hoc fiduciary relationship between the government and plan members with respect to actuarial surplus. The government did not undertake, expressly or impliedly, to act in the best interest of plan members with respect to surplus and without such undertaking the government's duty was to act in the best interest of society as a whole. The court also stated that members of public pension plans are not subject to the same risks as members of private pension plans and plan members were not vulnerable to the government's exercise of discretion in the accounting treatment of the surpluses in the Superannuation Accounts.
Lastly, the SCC held that as the government did not breach an equitable obligation owed to plan members there was no constructive trust or unjust enrichment.
The analysis of the SCC regarding surplus ownership may be limited to the unique circumstances of the plans under appeal. However, the court's elucidation of the four characteristics to establish an ad hoc fiduciary obligation will be helpful in assessing whether other employers, or any other party involved in the administration of a pension plan, owe fiduciary duties to plan members with respect to a particular task. Of particular note is that the SCC analysis shows that a plan sponsor's fiduciary obligations do not exist in a vacuum, and that whether a plan sponsor owes fiduciary duties to the plan beneficiaries depends on the specific circumstances, including the nature of the task under consideration. This analysis emphasises the distinction between an employer acting in its role as an employer versus a plan administrator with respect to a specific task. This appears to be in contrast to the Ontario Court of Appeal decision in Indalex Ltd. (Re) , where the court seemed to blur the distinction between the two roles and held that an employer that was carrying out certain non-pension related tasks (e.g., commencing CCAA proceedings) owed fiduciary duties to plan members in carrying out those tasks. It will therefore be interesting to see the SCC analysis on this issue in its much anticipated decision in the Indalex appeal.
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