Originally published in Blakes Bulletin on Pension & Employee Benefits, February 2007
CONSENT BENEFITS: PATRICK V. TELUS COMMUNICATIONS INC.
The issue before the B.C. Supreme Court was whether the employer, Telus Communications Inc., could withhold consent required for employees to retire early and still receive a full pension (a consent pension).
The plaintiffs were former Telus management employees and long-term members of a pension plan which stated that members with 30 years of service could, "with consent of the company," retire before age 55 on full pension. Without consent, 30-year employees could still retire before 55, but received a reduced pension. An expectation developed among management employees that they could retire on full pension after 30 years of service because the retirement benefits committee had never denied a request for consent pensions to 30-year employees since the provision was created in 1973.
By 2003, the Plan had developed a significant unfunded liability and, as a result, the committee changed its policy of virtual blanket approval of consent pensions to virtual blanket refusal of consent to the unreduced benefits.
The Court held that Telus had a right to withhold consent. It found that Telus’ consent was completely discretionary and that the plaintiffs were aware of this fact. The Court held that past practices do not dictate results and employees’ expectations are not vested nor accrued rights. The Court found that there was never any written or oral assurance that consent would be granted and no intentional misrepresentation nor concealment of information.
As for Telus’ exercise of its discretion, the Court held that there was no fiduciary duty requiring Telus to consider only the interests of the plaintiffs as beneficiaries. Telus was entitled to consider its own interests and, specifically, its future contribution levels.
The Court did rule that Telus was subject to a duty of good faith that required it to consider important relevant factors, exclude irrelevant factors and act honestly with no improper purpose. The Court noted, however, any duty of reasonableness must be limited to allow the trustees considerable leeway. Ultimately, the Court found Telus did not breach its duty of good faith and was not unreasonable by acting partly in its own interest. Telus’ reason for revoking its policy on granting consent was financial, that is, Telus was in trouble and had "a valid reason to control spending."
DEEMED TRUST PROVISIONS OF PBA: RE IVACO INC.
Ivaco and related companies became insolvent in 2003. They sought and obtained court-ordered protection under the Companies’ Creditors Arrangement Act (CCAA) and all creditors’ claims were stayed. A subsequent order stayed any obligation to pay outstanding past service contributions and special payments to the non-union pension plans.
At this point, no party objected to this order since everyone thought that relieving the companies from making these payments would assist restructuring efforts. Current service contributions continued during the restructuring. Ultimately, the companies were unable to successfully restructure. In late 2004, most assets were sold and all that remained was the proceeds of the sale to be distributed among the creditors.
The Superintendent of Financial Institutions brought a motion for an order that part of the sale proceeds be used to satisfy the unpaid past service and special contributions, which the companies were deemed to hold in trust for the beneficiaries under the PBA. Alternatively, the Superintendent sought an order segregating the money in a separate account. Two of the companies’ lenders brought motions for an order lifting the stay under the CCAA and petitioning the companies into bankruptcy. The motions judge dismissed the Superintendent’s motion, lifted the stay and permitted the petitions in bankruptcy to begin. The Superintendent appealed.
The appeal was dismissed. The Court of Appeal held that the PBA’s deemed trust provisions do not require assets to be segregated nor is there a provision requiring the payment of these contributions out of the proceeds at the end of the CCAA proceedings but before bankruptcy. There is no gap between the end of the CCAA process and the beginning of the bankruptcy proceedings in which the PBA’s deemed trust must be executed.
The Court also held that a monitor appointed under the CCAA proceedings does not step into the shoes of the employer, does not become the administrator of the pension plans and does not have any fiduciary obligation to plan beneficiaries.
THE ACTUARY AS AGENT: ONTARIO (SUPERINTENDENT OF FINANCIAL SERVICES) V. NORTON
A motion was brought to quash charges under the PBA and its regulations on the basis that they failed to disclose an offence known to law. An actuary and his employer, a consulting firm, were charged in relation to actuarial valuation reports that are alleged to have overstated the value of applicable plans’ pension assets such that the sponsor did not have to make contributions to the pension funds as would otherwise have been required. The charges allege the firm and actuary breached their duty as agents of the administrator under the PBA and failed to exercise the PBA’s standard of care for agents.
In first determining if the charges against the corporation should be quashed, the Court considered whether the consulting firm could (in the context of criminal responsibility in strict liability offences) be vicariously liable for the actions of one of its actuaries. It concluded vicarious liability could only arise if the legislation directly imposed a primary duty on the consulting firm. The Court held the PBA did not impose any such primary liability or duty and held the consulting firm was not vicariously liable.
The Court next considered whether the consulting firm or actuary could be agents retained by the administrator of the pension plan to prepare an actuarial report. According to the PBA and its regulations, only an actuary can prepare an actuarial report. As the firm was not an actuary, it could not prepare the report and, therefore, was not an agent. The charges against the corporation based on the proposition that the corporation had breached its duty as an agent were, therefore, quashed.
The employee was, however, an actuary and was found by the Court to be an agent of the administrator. As the administrator’s agent, the actuary was subject to the PBA’s standard of care imposed on an administrator, and also to the specific duties and standards set out in Regulation 909. The Court allowed the motion to quash the charges in respect of the consulting firm, but not as against the actuary.
QUÉBEC’S PROPOSED FUNDING AND ADMINISTRATIVE CHANGES
On December 13, 2006, Québec’s government assented to Bill 30, an Act to amend the Supplemental Pension Plans Act, dealing with the funding and administration of pension plans. Special measures will be prescribed by regulation to exempt universities, municipalities and childcare centres from the funding provisions. The proposed measures relating to funding take effect on January 1, 2010. Highlights include:
- Pension plans will be required to establish and maintain a provision for adverse deviation (a reserve) to provide coverage for the risks associated with market fluctuations. The formula for determining the amount of the reserve will be prescribed by regulation.
- Where benefit improvement costs cause solvency to drop below 90%, improvements will have to be funded by a special amortization payment payable in full at the time of the valuation and equal to the lesser of the improvement cost or the amount needed to ensure that the degree of solvency is equal to 90%.
- Solvency deficiencies must be amortized over a five-year period.
- Plans having a solvency deficiency may, under conditions to be prescribed by regulation, be relieved of paying all or part of the portion of the employer contribution related to an amortization payment in relation to the solvency deficiency by providing the pension committee with a letter of credit in an amount equal to up to 15% of solvency liabilities.
- Valuations must be carried out every year, provided that if a plan is fully solvent and fully funded, only a partial valuation is required. However, all plans must have a complete valuation every three years.
- Surplus may only be used for payment of additional obligations arising from benefit improvement amendments where the plan amendments are equitable for both the group of active members and the group of non-active members and beneficiaries. Notice of the proposed amendment must first be provided to members who must be notified of their right to object. If fewer than 30% object, it will be presumed that the amendments are equitable; otherwise it will be presumed that they are not. The notice requirement does not apply, however, if an amendment confirming the right of the employer to appropriate surplus has been made or where the parties have agreed in advance to rules regarding the use of surplus assets for benefit improvements.
- In the year after Bill 30 comes into force, the pension committee will have to adopt: internal by-laws stipulating rules of ethics; duties and obligations of members, delegatees, representatives and service providers; measures to be taken to ensure risk management; and rules governing selection, remuneration, and evaluation in relation to the delegatees and service providers.
- A pension committee that acts on an expert’s opinion will be presumed to have acted with prudence.
- Only the pension committee will be able to appoint delegatees and service providers, who must act in the best interest of the plan members and will not be able to exclude or limit their liability. Delegatees and service providers must report to the committee any situation that might adversely affect the financial interests of the pension fund and they must report to the Régie any case where the committee fails to take the necessary corrective measures.
- Committee members will be compensated by the pension committee if they have committed no fault. Committee members who are insured and who have committed a fault, other than a deliberate or gross fault, may be compensated by the pension committee up to the amount of the deductible. This measure is intended to take effect retroactively to June 14, 2006.
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.