The trend in many recent pension cases has been to blindly apply strict trust law principles to pension plans funded through trusts. The June 22, 2006 decision of the Supreme Court of Canada in Buschau v. Rogers Communications Inc. suggests an easing of this strict approach.
In Buschau v. Rogers Communications Inc., members of a closed pension plan registered under the federal Pension Benefits Standards Act sought to unilaterally cause the termination of the trust underlying the plan and, in so doing, force a distribution of the plan’s surplus trust assets. They did so based on an old English legal principle known as the "rule in Saunders v. Vautier." This principle enables beneficiaries of a trust to unilaterally terminate the trust, provided that the beneficiaries are all adults of full mental capacity, and that they together hold all of the beneficial interests in the trust property, both actual and contingent.
The Supreme Court of Canada held that the rule in Saunders v. Vautier does not generally apply in the registered pension plan context. In reaching its decision, the Court recognized the unique context in which pension trusts operate. Its reasons for so deciding include the following:
The rule in Saunders v. Vautier is displaced to the extent that the comprehensive legislative scheme occupies the field concerning the termination of pension plans.
Employers establish pension plans because doing so suits their interests and they have the "right not to have their management decisions disturbed."
The important social purpose served by pension trusts "of preserving the financial security of employees in their retirement by allowing them to receive periodic payments until they die" would be defeated if members could require early distribution of pension trust assets.
The Supreme Court was divided on the issue of whether the plan, being closed to new members, could be re-opened by amendment. The majority of the Court held that this should be determined by the Superintendent; the minority found that the grounds for termination did not exist and that the sponsor could re-open the plan.
This decision could provide a helpful precedent for plan sponsors as it represents an easing of the recent strict application of trust law principles in the pensions context. Specifically, the Supreme Court has clarified that not all trust law principles are applicable in the pensions context; an analysis must be made in each case to determine the extent to which trust law principles ought to be applied.
Evan Howard is a partner in Osler's Pensions & Benefits Department. He practises exclusively in the pensions and benefits area, advising on a full range of issues under both federal and provincial legislation. Stephanie Kauffman is an associate in the Pensions and Benefits Department in the firm’s Toronto office.
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