This article was first published in Blakes Bulletin on Pension & Benefits - January 2004
In recent months, there have been numerous rulings, regulatory actions and ongoing proceedings of great interest to pension plans in the courts and before the Financial Services Tribunal. There have also been some discussion and consultation papers of note.
The ongoing case of Monsanto Canada Inc. v. Superintendent of Financial Services will be heard by the Supreme Court of Canada in February, 2004. The Ontario Court of Appeal had affirmed an earlier decision by a lower court that supported the Superintendent’s position under the Pension Benefits Act that surplus assets in a pension plan’s partial wind-up must be distributed at the time of the wind-up. Recently, OSFI has sought intervenor status in support of Monsanto’ s position.
Until the final court ruling on this issue, the Superintendent will not be taking any specific action to require the distribution of surplus assets related to partial wind-ups. However, FSCO is reminding plan administrators that they must ensure adequate assets are maintained in the plan to meet obligations if the Supreme Court upholds the Ontario ruling.
Markle v. City of Toronto has come to rest now that the Supreme Court of Canada has recently refused the City’s application for leave to appeal. The case involved the attempted recovery of pension plan administrative expenses from a pension fund created for City of Toronto employees by a 1956 by-law. Under the terms of the by-law, the City was required to pay the administrative expenses. In 2001, the City passed another by-law requiring the trustees to pay the administrative costs from the pension fund. At trial, and on appeal, the courts ruled the second by-law was unlawful, holding that the pension plan created a trust in favour of the beneficiaries and the amending by-law constituted a partial revocation of trust and breach of trust. The appeal court added that the amending by-law was an improper attempt to limit the discretion of the trustees and an unlawful attempt to withdraw assets from the fund to which the City was not entitled.
Pension Issues Arising in Corporate Reorganizations
In Aegon Canada Inc. v. ING Canada Inc., the Ontario Court of Appeal recently denied an appeal heard on November 3, 2003. In the case, Aegon claimed that ING breached warranties in a share purchase agreement. Aegon purchased from ING shares of NN Life Insurance Company of Canada, which had previously amalgamated in 1989 with Halifax Life Insurance Company of Canada.
The issue was whether NN Life could use assets of the Halifax Life Plan for purposes of determining whether NN Life was required to make contributions to the NN Life Plan. The Halifax Life Plan assets were subject to a 1969 trust agreement stating that no amendment could be made that would permit diversion of its assets for any purpose other than for the exclusive benefit of members. In 1992, NN Life transferred assets of the Halifax Plan into the NN Life Plan, on the condition, and pursuant to an undertaking to the pension regulator, that the assets of each plan would be treated as separate and distinct. However, NN Life later treated them as a single fund for purposes of determining whether NN Life was required to make contributions to the NN Life Plan.
On its own, the NN Life Plan showed a deficit and the Halifax Life Plan showed a surplus. In consolidating the NN Life Plan with the Halifax Life Plan, a surplus was revealed, justifying their decision to take contribution holidays under the NN Life Plan. The lower court in Ontario decided that the 1969 trust and the undertaking given to the Pension Commission of Ontario protected the Halifax Life Plan assets, meaning the NN Life Plan was in deficit and that NN Life breached its warranties in the share purchase agreement. The decision was upheld by the Ontario Court of Appeal.
Closing of Membership and Plan Termination
In Bower v. Cominco Ltd., British Columbia courts dealt with a class action lawsuit launched by retirees who were members of a Pension Fund Society (PFS) Plan, a non-contributory defined benefit pension plan incorporated under the Pension Fund Society Act in 1926.
The PFS plan was closed at the end of 1965. At that time, all of the members of the PFS Plan, except one, were also members of successor plans established by Cominco. Between 1983 and 1985, some PFS Plan assets were transferred to the successor plans. By 1986, the successor plans had assumed all of the PFS Plan’s obligations and, by 1989, the remaining assets were transferred. The retirees argued at trial and on appeal that the PFS Plan was terminated in 1986 when the successor plans assumed its obligations and any resulting surplus should have been distributed to its members.
The British Columbia Court of Appeal agreed with the trial judge and ruled the PFS Plan was not terminated in 1986 but had merely merged with the successor plans. Thus, no surplus had crystallized. In addition, the court upheld the argument of Cominco that the PFS Plan had not been irrevocably closed in 1965 since new beneficiaries might have been added or new liabilities created.
The matter of the Jane Parker Bakery Limited Retirement Plan for Full-time Bargaining Employees continues. This case involves a request for a hearing regarding the Superintendent’s 2003 Notice of Proposal to refuse to consent to an application by The Great Atlantic & Pacific Company of Canada Limited to withdraw an overpayment made by it to the plan. The overpayment arose after the company funded a plan deficit on wind-up that proved to be more than adequate to meet the deficit. The Superintendent maintains the overpayment is surplus and can only be paid out to the company in accordance with s. 79 of the Pension Benefits Act. Currently, settlement negotiations continue.
Discussion and Consultation Papers
The Canadian Association of Pension Supervisory Authorities (CAPSA) has released its Draft Pension Plan Governance Guidelines and a self-assessment questionnaire for use by registered pension plans. The Guidelines will assist plan administrators implement governance practices. In November 2003, CAPSA posted information on its Web site for "road testing" the guidelines. They invited plan administrators to complete an online survey by February 20, 2004 and "test drive" the questionnaire. Final release of the Guidelines and questionnaire is expected in the fall of 2004.
The Joint Forum led public consultations, which ended on August 31, 2003, concerning proposed guidelines for Capital Accumulation Plans. As part of the consultation, the Joint Forum sent the proposed guidelines to national pension, insurance and securities stakeholder groups for comments, and met with employers, administrators, members, and pension service providers to discuss the proposed guidelines. The Joint Forum is currently reviewing feedback and developing final guidelines.
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.