Canada: Regulatory Update & New Case Developments

Article by Caroline Helbronner and Jeffrey Sommers, ©2005 Blake, Cassels & Graydon LLP

This article was originally published in Blakes Bulletin on Pensions - February 2005

There have been a number of recent decisions of the courts, as well as recent developments in legislation and regulatory policies, of particular significance in the pensions area.

Buschau is a case, discussed in our August 2004 Blakes Bulletin on Pension & Employee Benefits, which involved members of a trusteed pension plan seeking to terminate the plan in order to access surplus. Rogers’ application for leave to appeal to the Supreme Court of Canada was dismissed on October 14, 2004.

This case, discussed in our March 2004 Blakes Bulletin on Pension & Employee Benefits, involved an application for damages arising from alleged breaches of specific representations and warranties in a corporate share purchase agreement including that the plan was fully funded on an ongoing and a solvency basis and that the financial statements of the purchased company were accurate.

ING’s application for leave to appeal to the Supreme Court of Canada was dismissed on July 8, 2004.

Bourdon involved a Stelco pension plan registered in Ontario under which some of the members were employed in Québec. In 1990, Stelco closed three of its facilities in Québec and, at the request of the affected employees, the Superintendent ordered a partial wind-up of the plan.

In determining the affected members’ entitlements, Stelco did not provide "grow-in" benefits under subsection 74(1) of the Ontario Pension Benefits Act (the PBA) because the affected employees were employed in Québec and Stelco took the position that grow-in benefits under the PBA apply only to members employed in Ontario.

The affected members claimed entitlement to grow-in benefits on the basis that the pension plan stated that it was to be construed and interpreted in accordance with Ontario law. The Superior Court found that it had jurisdiction to hear this case and concluded that section 74 of the PBA did not apply to the members employed in Québec.

On appeal, the majority of the Québec Court of Appeal agreed with the Superior Court in finding that the court had jurisdiction to hear this matter. The majority also agreed with the Superior Court in finding that section 74 of the PBA does not apply to members employed in Québec. The majority concluded that the provision of the plan which indicated that the plan was to be construed and interpreted in accordance with the laws of Ontario did not grant any benefits to plan members. After examining the wording of subsection 74(1) of the PBA, the majority concluded that that subsection applies exclusively to members of a pension plan employed in Ontario.

The affected members sought leave to appeal to the Supreme Court of Canada, which was granted on November 18, 2004.

Graham examined the issue of negligent misrepresentation when plan administrators advise beneficiaries of their pension entitlements. In 1990, St. Anne-Nackawic Pulp Co. terminated the plaintiffs’ employment. At that time, the company advised the plaintiffs of their defined benefit entitlements, including the consequences of electing early retirement. In such event, they were told that their benefits would be "subject to appropriate reductions". Subsequently, at age 55, the plaintiffs learned that their monthly pension benefits would be substantially less than initially advised. The plaintiffs claimed that the company, in its capacity as plan administrator, negligently misrepresented the pension benefits available to them at age 55.

The court concluded that the representations made to the plaintiffs were negligently made. The court found that at the time the plaintiffs were asked to elect early retirement, the company failed to explain the distinction between a standard reduction and an actuarial reduction. Since the court found that there was no evidence that the plaintiffs knew or should have known the significance of the words "actuarially reduced" found in a letter from the company, the plaintiffs acted reasonably in relying on the information communicated to them during their early discussions with the company.

To avoid this outcome, the court advised that if the letter from the administrator had set out the options available to each employee in clear language, the problems giving rise to the litigation would not have occurred.

To address the solvency deficiency in its pension plan, Butler Brothers had deposited a letter of credit from a Canadian chartered bank into the pension fund. The B.C. Superintendent of Pensions rejected the letter of credit and directed Butler Brothers to pay the deficiency through instalment payments according to the Regulations and as set out by the actuary.

The British Columbia Supreme Court denied Butler Brothers’ appeal and in doing so rejected the argument that a letter of credit is an asset identical to cash. Instead, the court found that since the plan could realize upon the letter of credit only if the plan was terminated, the letter of credit was "an asset with a condition". According to its reading of the British Columbia pension legislation, the court held that the legislation prevented the conditional funding of solvency deficiencies.

On August 18, 2004, Ontario Labour Minister Chris Bentley released a consultation paper entitled "Providing Choice: A Consultation Paper on Ending Mandatory Retirement". The Ontario government is committed to ending mandatory retirement and this consultation paper solicits comments on a variety of ways of accomplishing this goal.

Effective December 9, 2004, the rules governing "grow-in benefits" under the Nova Scotia Pension Benefits Regulations were amended. "Grow-in benefits" refers to the statutory entitlement to an enhanced pension calculated based on the assumption that the member would have remained in the plan long enough to qualify for early retirement.

Under the amended Nova Scotia regulations, a liability for the value of grow-in benefits is no longer required to be included in solvency valuations and, on full or partial plan wind-up, grow-in benefits are payable only if there are funds remaining after all other benefits have been paid.

These changes follow two failed attempts by the Nova Scotia government during 2004 to amend the Pension Benefits Act to eliminate grow-in benefits. Nova Scotia and Ontario are the only two jurisdictions with pension legislation that provides grow-in benefits.

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.