Canada: Pension Plan Sponsors Can Pay Plan Expenses From Fund: Kerry

Last Updated: August 16 2007
Article by Mitch Frazer

Originally published in The Lawyers Weekly, July 20, 2007

A recent long-awaited decision of the Ontario Court of Appeal clarifies important legal issues for pension plan sponsors who are considering paying plan expenses out of the fund, changing their plan structure or communicating to plan members.

The Kerry decision

In Kerry (Canada) Inc. v. DCA Employees Pension Committee, [2007] O.J. No. 2176, a defined benefit (DB) plan was established in 1954 and the assets of the plan were held in a trust.

From the plan’s inception through to the end of 1984, the company paid all plan expenses. Beginning in 1985, the company began paying third-party expenses from the fund and taking contribution holidays.

In 2000, the plan was amended to add a defined contribution (DC) component. New employees were required to participate in the DC component, and existing employees were given a one-time option to convert the value of their DB pension.

After the 2000 amendments were introduced, a committee of former employees asked the Superintendent of Financial Services (Superintendent) to investigate alleged irregularities in the administration of the plan. The Superintendent issued a Notice of Proposal to make an order requiring the company to reimburse the fund for expenses paid from the fund that were not incurred for the exclusive benefit of plan members.

Through a series of appeals, the Financial Services Tribunal (see "Can plan expenses be paid from the fund?" in the March 24, 2006, issue of The Lawyers Weekly) and then the Ontario Divisional Court (see "Decision makes paying plan expenses out of pension funds more difficult" in the May 19, 2006, issue of The Lawyers Weekly) considered the following issues:

  1. the ability to pay plan expenses from the fund;
  2. the use of surplus assets in the DB component of a plan to pay current service costs in respect of the DC component of the plan (cross-subsidization); and
  3. what constitutes proper notice of an adverse amendment.

The matter was then appealed to the Ontario Court of Appeal.

Plan expenses

The Court of Appeal held that the company was permitted to pay most of the plan expenses from the fund. Since neither the Ontario Pension Benefits Act (PBA) nor legal principles require a company to pay plan expenses, the court held that the terms of the plan documentation (the plan text and the trust agreement taken together) must govern.

The court also held that if a plan text is silent in respect of payment of plan expenses, this does not create a legal obligation for a company to pay expenses, and a past practice of voluntary payment of expenses does not create a legal obligation to continue this practice.

However, the court did decide that payment for advice regarding the addition of a DC option was for the company’s own benefit and that it was obliged to pay for this advice.

Contribution holidays and cross-subsidization

The court held that surplus in the DB component of a pension plan could be used to satisfy a company’s contribution obligation regarding the DC component of that plan. The fact that plan membership was expanded through inclusion of a new category of member did not alter the company’s right to take contribution holidays as long as the members in the DC component were beneficiaries of the entire fund.

Finally, the court specifically contradicted the Ontario Divisional Court and held that the introduction of a DC component to the plan does not create a second plan.

Notice of plan amendment

The court held that the company had an obligation to give notice of the plan amendment that created the conversion option and that a conversion from DB to DC was an adverse amendment because of the uncertainty and risk of such a change.

The court also held that although the company did not give plan members adequate notice of the conversion option, failure to do so did not result in an amendment being non-registrable or void since the PBA gives the Superintendent the discretion to register an amendment even when inadequate notice has been given.

Implications of Kerry

Kerry clarifies a plan sponsor’s right to pay plan expenses from a pension fund, the use of DB surplus to fund employer contributions under the DC component of the plan and the notice requirements on a plan conversion.

While the right of plan sponsors to pay plan expenses from the fund has been expanded, employers will still have to carefully analyze their historical plan and trust documentation to ensure that the language does not restrict reimbursement.

Plan sponsors will also have to carefully consider what types of fees they can legally charge to the pension fund. Employers will be required to pay expenses that are clearly for their benefit.

Cross-subsidization turns on plan documentation and may be permitted if members are beneficiaries under both components of the same plan and if the plan language permits contribution holidays and cross-subsidization. Therefore, cross-subsidization will be permitted if a DC conversion is properly structured.

Plan sponsors should ensure that communications are consistent with pension legislation and plan documents, and that they properly describe the effect of any changes or members rights concerning the plan.

Mitch Frazer is a senior associate in the Pension and Employment Group at Torys LLP. He is also an adjunct professor at the University of Toronto Faculty of Law.

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.