Canada: Merging Pension Plans in Canada: Where Do We Go From Here?

Last Updated: September 15 2005

Article by Mitch Frazer*

A lack of clarity in the case law, coupled with minimal legislation and restrictive policies established by the regulatory bodies, have limited pension plan mergers in many Canadian jurisdictions. Recent legal developments have made pension plan mergers in Canada more complicated. In light of these developments, plan sponsors considering a pension plan merger need to be particularly aware of a number of key issues. The purpose of this paper is to analyze the problems of merging pension plans in Canada, determine how these problems are dealt with and propose solutions to the problems. This paper will focus primarily on registered pension plans from an Ontario law perspective.

The Problems of Merging Pension Plans

Although there are good reasons to be cautious when contemplating a plan merger, it is in both the employer’s and the employee’s best interest that such transactions be possible. When two businesses combine, if no merger of the plans is possible, employees may be disadvantaged. This is because many pension plans in Canada use calculations for entitlement which take years of service into account. Where plans are not merged, the combined pension an employee collects may be reduced and he or she has the inconvenience of collecting from two different plans.

From an employer’s perspective, prior to the recent developments in the case law, it was common for plan sponsors to merge a plan in surplus with a plan in deficit and to use the surplus in one plan to off-set the funding obligations in the other. Furthermore, the synergies a company may achieve with another company are usually an important business consideration in a merger or acquisition. Thus, the ability to merge plans in order to make use of surplus, to transfer plan assets when undergoing corporate reorganization and to reduce administrative costs can be important to the employer’s ability to conduct its business.

Most pension plans contain different provisions regarding plan mergers and the language of the plan text will help determine the ease with which a plan merger may take place. However, there are certain problem areas of which plan sponsors need to be aware when considering mergers and reorganizations. Primarily, a plan sponsor needs to determine whether its plan is impressed with a trust, as this will affect whether and to what extent the plan can be amended. Secondly, if there is a trust, the plan sponsor needs to examine the trust instrument in order to determine whether there is any language in the instrument which might affect a plan merger or reorganization. In Schmidt v. Air Products1 the court held that the power of revocation must be expressly reserved in order for any amendments to be made to the trust instrument.2 Finally, the plan sponsor needs to consider whether the plan is open or closed since the beneficiaries of a closed plan have certain rights that will affect the ability of the plan sponsor to deal with the plan.

One of the biggest problems facing plan sponsors and employers contemplating the merger of two or more pension plans is a subject that is sparsely addressed, if at all, in pension legislation. The regulatory control over the merger process in most Canadian jurisdictions is derived from the regulator’s general authority to consent to, or deny approval for, the transfer of assets from one plan to another. In Ontario, legislation provides that where assets are transferred from one plan to another, the consent of the Superintendent is required3 That consent cannot be given unless the pension benefits and other benefits of the members of the transferring plan are protected.4

Another problem is that historically, there has been little Canadian case law on the issue of pension plan mergers. However, recently, there has been case law which has restricted plan mergers. Two cases in particular illustrate the issues that plan sponsors and employers face when contemplating plan mergers.

Buschau v. Rogers Cablesystems Inc.5

This case involved the merger of a plan for employees of Premier Cablevision Ltd. ("Premier"). The Premier Communications Ltd. Pension Plan (the "Premier Plan") was established in January 1974 and funded pursuant to a trust agreement. Under the trust agreement, money from the Premier Plan was to be used for the "exclusive benefit" of the Premier Plan beneficiaries, and no amendment was permitted to the Premier Plan which derogated from that right. Furthermore, any surplus that existed was to be used to provide enhanced benefits to Premier Plan members.

In 1980, Rogers Cablesystems Inc. ("Rogers") acquired Premier, and began to administer the Premier Plan. Under Rogers’ administration, a new section was added to the Premier Plan text which specified that, upon termination of the Premier Plan, any surplus was to be returned to Rogers. By 1984, the Premier Plan had been in surplus for a number of years. As a result, Rogers decided to close the Premier Plan and begin taking contribution holidays. The contribution holidays continued until 1992, when Rogers decided to merge the Premier Plan with four other plans, three of which were in deficit, in order to form an amalgamated plan (the "RCI Plan"). The RCI Plan provided that all surplus was to revert to Rogers. In 1995, a number of the beneficiaries of the Premier Plan commenced an action against Rogers claiming a return of all withdrawn surplus and contribution holidays and claimed that they should be able to unilaterally terminate the plan pursuant to the rule in Saunders v. Vautier.6

At the British Columbia Court of Appeal, Newbury J.A. followed the Supreme Court of Canada’s reasoning in Schmidt and determined that "classic" trust principles, such as the rule in Saunders v. Vautier, ought to be applied to pension trusts. As a result, Newbury J.A. held that not only would the beneficiaries of the Premier Plan be able to terminate the plan against Rogers’ wishes, but that despite the merger, the members of the Premier Plan retained rights which were separate and distinct from those held by beneficiaries of the other plans. Because the original text of the Premier Plan had stipulated there were to be no amendments to the Premier Plan unless they were for the benefit of Premier Plan members, Newbury J.A. held that the Premier Plan had not in fact been merged and still existed as a separate trust, which required Rogers to separately account for it on a continuing basis. Buschau provides an important example of how difficult it can be to deal with pension trusts, both because classic trust principles are made to apply to an atypical trust format, and because trust law restricts the ability to amend a trust plan.

It is important to note that the rule in Saunders v. Vautier may only be applied where a trust is closed. With the extension of this rule to pension law, it is unclear how much effect it will have as plan sponsors generally have the power to re-open a plan. However, it is clear that Canadian regulators need to clarify the current uncertainty in order for plan sponsors to be able to administer their plans appropriately.

Aegeon Canada Inc. v. ING Canada Inc.7

Transamerica is the most important case dealing with asset transfers decided in the past few years. In this case, Aegeon Canada Inc. and Transamerica Life Canada had arranged to enter into a share purchase transaction with ING Canada Inc. ("ING") for the shares of NN Life Insurance Company of Canada ("NN Life"). Under the share purchase agreement, ING had warranted that all required contributions had been made to the NN Life Pension Plan (the "NN Life Plan"), and the plan was fully funded on a going concern and solvency basis.

The NN Life Plan was the product of a merger between a Halifax Life Insurance Company of Canada pension plan (the "Halifax Plan") and an NN Life Insurance Company of Canada pension plan. At the time of the merger, the Halifax Plan was impressed with a trust, the terms of which stipulated that no amendment to the trust could authorize the use of the funds in the trust for anything other than the "exclusive benefit" of the plan beneficiaries. Pursuant to the PBA, NN Life had sought plan merger approval from the Pension Commission of Ontario ("PCO") prior to the merger. In order for the merger to be approved, NN Life was required to provide an undertaking that all transferred assets and associated liabilities of the Halifax Plan would be maintained in an account separate from the NN Life Plan. NN Life abided by the terms of the undertaking and made a separate accounting. However, for the purpose of determining whether it could take contribution holidays, NN Life treated the two plans as one. For a number of years, the Halifax Plan was in surplus and the NN Life plan was in deficit; however, based on the combined accounting, NN Life did not make any employer contributions to the NN Life Plan.

Upon examining the trust agreement, the Court of Appeal held that the terms of the trust prevented any part of the fund from being diverted to any purpose other than to the "exclusive benefit" of the Halifax Plan beneficiaries. Moreover, as a result of both the trust instrument and NN Life’s undertaking to the PCO, NN Life was required to maintain the Halifax Plan assets separate from those of the NN Life Plan.8 Ultimately, the court held that there was no legal basis for NN Life to consider the Halifax Plan surplus when determining its funding obligations for employees who were not members of the Halifax Plan.9 As a result, the court determined that ING had breached its warranties to Aegeon Canada Inc. and Transamerica Life Canada.

Solutions to these Problems

In response to Transamerica, the Financial Services Commission of Ontario ("FSCO"), the successor to the PCO, drafted a new policy on how it would approach pension asset transfers. Although this policy only pertains to Ontario registered pension plans, the direction taken by FSCO may influence the regulators in other Canadian jurisdictions. FSCO’s position drastically restricts plan mergers between defined benefits plans unless the merger can be distinguished from the facts of Transamerica.

A recent court decision, Baxter v. Ontario (Superintendent of Financial Services)10 has provided some welcome news for plan sponsors and employers who are contemplating plan mergers despite Transamerica and FSCO’s subsequent policy.

Baxter v. Ontario (Superintendent of Financial Services)

Baxter deals with the merger of two pension plans. The National Steel Car Corporation Limited Pension Plan (the "Original Plan") was established in 1952 and covered both salaried and hourly employees. The Original Plan was funded through a group annuity policy with the Mutual Life Assurance Company of Canada and annuity contracts with the Canadian government. The Original Plan’s terms expressly permitted plan mergers. In 1965, the Original Plan was split into a plan for salaried employees (the "Salaried Plan") and a plan for hourly employees (the "Hourly Plan"). Subsequently, in 1972, the Salaried Plan was amended to provide that any surplus was to revert to National Steel Car Limited ("NSC"). Finally, in 1994, the funding structure of both plans was changed to a pension trust.

In 2000, NSC announced that it intended to merger the Salaried Plan with the Hourly Plan by transferring the Salaried Plan to the Hourly Plan. At this time, the Hourly Plan was in deficit while the Salaried Plan was in surplus. The Superintendent of Financial Services consented to the transfer. However, members of the Salaried Plan applied to the Financial Services Tribunal to review the Superintendent’s decision. The Tribunal upheld the Superintendent’s decision and the members appealed to the Divisional Court.

The argument of the Salaried Plan beneficiaries was that the merger did not protect their benefits because the Salaried Plan surplus might be used to enable NSC to take contribution holidays despite the Hourly Plan’s underfunded status. The Salaried Plan beneficiaries argued that their plan was subject to a trust prior to the amendment in 1994 and that, as a result, the amendment permitting the reversion of surplus made in 1972 was invalid. Finally, the beneficiaries of the Salaried Plan argued that Transamerica was binding on the court. In analyzing these arguments, the court made a number of important points. First, the court re-affirmed the trust law principle that in order for a trust to be created, there must be a clear intention to do so.11 Second, the court held that, consistent with the finding in Schmidt, the beneficiaries of a plan do not have any rights in the surplus of a plan while the plan is ongoing. Finally, the court clearly distinguished Transamerica on its facts because unlike in Transamerica, in this case the plan text expressly permitted mergers.12 This is significant because it potentially limits the scope of the Transamerica decision, and suggests that plan mergers may still be possible even where one plan is in deficit and the other in surplus.

The Baxter decision is welcome news for plans sponsors as it confirms that the FSCO’s merger policy does not prohibit pension plan mergers and that there is nothing in general trust law which prevents such mergers. The facts in Baxter were quite different from the predecessor cases. Unlike Buschau, plan membership was not closed. Unlike Transamerica, there was no undertaking to keep plan assets separate. Therefore, plan sponsors and employers should be aware that a situation with less favourable facts may not yield the same results.

Where Do We Go From Here?

Pension mergers and asset transfers will always be case-specific. Thus, when approaching any pension plan merger in Canada, it is important to focus on the original plan text and any subsequent amendments to determine whether a merger is prohibited. Plan sponsors must be well prepared to demonstrate on a case-by-case basis that Transamerica and the regulator’s asset transfer policy have no application to their asset transfer. In some cases, this may entail a legal review of the plan’s historic language to assess whether the issues and the kind of language noted in Transamerica are present. This is especially important when dealing with a pension plan which is subject to a trust.

The recent cases dealing with pension mergers and asset transfers in Canada have left a significant number of questions for companies wishing to reorganize their pension structures. This uncertainty, delay and/or refusal to permit the transfers of assets and liabilities on sale of business transactions and in plan mergers does not benefit plan sponsors or plan members. Given the importance of pension plans to both the employer and the plan beneficiaries, it is crucial that Canadian governments and regulators step in and provide consistent direction on how these transactions may be effected without resorting to the judicial system.

Baxter is welcome news to pension plan sponsors who feared that pension plan mergers would be severely limited by Transamerica. However, while this decision clearly demonstrates that plan mergers are possible, each decision will turn on its own facts making it impossible to state that this case has paved the way for all plan mergers. Transamerica and FSCO’s asset transfer policy will continue to significantly restrict the ability of plan sponsors to merge pension plans.


* With assistance from Gillian Dingle, student-at-law, Torys LLP.

1. [1994] 2 S.C.R. 611 [hereinafter Schmidt].

2. Ibid. at 635

3. Pension Benefits Act, R.S.O. 1990 c. P-8, ss. 80(4) and 81(4) [hereinafter PBA].

4. Pension Benefits Act, R.S.O. 1990 c. P-8, ss. 80(5) and 81(5).

5. (2001) 26 C.C.P.B. 47 (B.C.C.A.), [2001] B.C.J. No. 50 (B.C.C.A.), online: QL (BCJ) [hereinafter Buschau].

6. (1841) 49 E.R. 282 (U.K. Ch. Ct.). This case set the groundwork for a principle of trust law which holds that beneficiaries who together are entitled to all the rights of beneficial ownership, actual and possible, in the trust property may, if they are of full capacity, call for the extinguishment of the trust, notwithstanding the settlor’s expressed wishes.

7. [2003] O.J. No. 4755 (Ont. C.A.), online: QL (OJ) [hereinafter Transamerica].

8. Ibid. at para. 7.

9. Ibid. at para. 8.

10. [2004] O.J. No. 4909 (Div. Ct.), online: QL (OJ) [hereinafter Baxter].

11. Ibid. at para. 71.

12. Ibid. at para. 69.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.