Originally published in Blakes Bulletin on Pension and Employee Benefits, August 2007
Surplus Entitlements And Contribution Holidays
Potter v. Bank of Canada.A defined benefit pension plan sponsored by the Bank of Canada was the subject of an action by retired members, who claim the Bank wrongfully paid pension plan expenses from the pension fund. The Bank successfully brought a motion striking out the claim for direct payments to the plan’s beneficiaries and a declaration that the matter could not be brought as a class proceeding. The plaintiffs appealed. The Ontario Court of Appeal upheld the decision of the motions judge to strike the claim for direct payments to the beneficiaries, stating that restitution to the plan was the only available remedy. The Court did, however, reverse the motions judge’s finding that the matter could not proceed as a class proceeding.
Vivendi Universal Canada Inc. v. Jellinek.Following this action’s certification as a class proceeding, the Ontario Superior Court of Justice has now approved a surplus sharing agreement between the employer and the surplus sharing group in the wind-up of a pension plan. The agreement provided that, before the division of the surplus between the employer and surplus sharing group, a portion of surplus would be used to fund the expenses of the wind-up. The court approved the agreement, subject to an amendment that expenses be "reasonable" before they are paid by the pension fund.
Cousins et al. v. Attorney General of Canada and Marine Atlantic Inc.Three applications for judicial review were brought to the Federal Court, corresponding to three partial terminations of three parts of a pension plan administered by Marine. They challenged the alleged failure of the Office of the Superintendent of Financial Institutions (OSFI) to require the company to distribute a share of surplus on partial terminations of the plan, which the applicants claimed was required by the federal Pension Benefits Standards Act (PBSA). The relevant wording of the PBSA is similar although not identical to wording in the Ontario PBA, which was considered by the Supreme Court of Canada in Monsanto.
At trial, the Federal Court dismissed two of the three applications for being "out of time" – that is, a judicial review must have taken place within 30 days from the time of the decision, unless a court permits otherwise. The court was unwilling to grant an extension in this case. On the third application, counsel for the applicants relied on Monsanto and argued that where there is partial termination and wind-up of a pension plan, there must be a proportional payment out of the actuarial surplus at that time. The court agreed that PBSA subsection 29(12) does require proportional distribution of the surplus attributable to the wound-up part of the plan, that wind-up must occur within a reasonable time from termination and, if winding-up does not occur within a reasonable time after termination, the Superintendent shall require that it be done. The Federal Court’s decision in this case has been appealed.
Bankruptcy And Insolvency
Ivaco Inc. (Re).Ivaco became insolvent in 2003 and received creditor protection under the CCAA. Its restructuring attempts were unsuccessful and the company’s assets were liquidated, leaving the sale proceeds to be distributed among creditors. The Ontario Court of Appeal dismissed an appeal of OSFI and upheld the order of the motions judge, which lifted a stay of proceedings and permitted the bankruptcy applications to proceed, without protecting the claims of the pension beneficiaries. The Supreme Court of Canada has now granted the Ontario Superintendent’s application for leave to appeal.
Retiree Benefits Bennett v. British Columbia. A class proceeding was brought against the Province of British Columbia, claiming it had wrongfully reduced the post-retirement health care benefits of retired workers. The Province had historically paid all premiums of retirees’ extended health care. In 2000, an agreement between the government and its unions resulted in the transfer of payment of post-retiree benefits from the Province’s Consolidated Revenue Fund to the employer’s Inflation Adjustment Account, which led to a reduction in retiree benefits. The plaintiff retirees allege the benefit reduction constituted a breach of the employment contract and of fiduciary duty.
First, the B.C. Supreme Court held it had the jurisdiction to hear the matter and it did not fall within the exclusive jurisdiction of a labour arbitrator. In view of the large number of plaintiffs involved, the court also held a class proceeding was appropriate. The Province appealed and the Court of Appeal allowed the appeal in part, finding that only those employees directly employed by the Province could participate in the claim – excluding all class members employed by Crown corporations. Crown retirees were, however, allowed to be included in the claim for breach of fiduciary duty. The appeal was otherwise dismissed, upholding the lower court’s findings with respect to jurisdiction and proceeding by way of class action.
Duty To Accommodate McGill University Health Centre (Montréal General Hospital) v. Syndicat des employes de l’Hopital general de Montréal. The plaintiff was an employee of McGill University Health Centre who took a leave of absence and was unable to return to work following a lengthy rehabilitation period. The plaintiff’s employment was terminated and the hospital cited her prolonged absence as cause for the dismissal. The union filed a grievance and asked the hospital to negotiate a reasonable accommodation with the plaintiff. The arbitrator dismissed the grievance. He found the hospital had accommodated the plaintiff by giving her extended rehabilitation periods more generous than those required in the collective agreement and the agreement contained provisions that allowed the hospital to terminate employees owing to prolonged illness-related absences.
The union applied for judicial review and the Superior Court dismissed the application. On further appeal, the Court of Appeal found the lower court relied too heavily on the collective agreement and failed to address the issue of reasonable accommodation of the plaintiff as an individual. The hospital was granted leave to appeal to the Supreme Court of Canada, which held a termination clause in a collective agreement, while not determinative of accommodation, does give a clear indication of the employer’s intention with respect to reasonable accommodation. As well, the Court found the employer met its duty to accommodate by granting a rehabilitation period significantly longer than that required by the collective agreement.
Grievance Arbitration Or Courts?
Alberta Teachers Association v. Calgary School District #19 (Board of Trustees).Some Alberta teacher trade unions commenced court proceedings against the Board of Education alleging it was in breach of its fiduciary duty by retaining surplus money refunded to it by insurers for excess benefit plan premiums. The Board’s position was the dispute arose under collective agreements and that grievance arbitration, rather than the courts, was the appropriate forum. The Court of Queen’s Bench held the matter fell within the ambit of the collective agreement and any dispute should be handled through grievance arbitration and not the courts. The Court relied on the Supreme Court of Canada’s Bisaillon v. Concordia University, which held a pension surplus dispute fell within the collective agreement and was to be resolved through grievance arbitration. The court also relied on Hydro-Québec for the principle that the collective agreement continues to apply for the lifetime of members and into retirement and, accordingly, any disputes arising under the collective agreement, even after retirement, could be referred to grievance arbitration.
Provincial Health Plan Benefits
Flora v. Ontario Health Insurance Plan.Turned down by doctors as a suitable liver transplant candidate, Flora, an Ontario resident, had a living donor transplant in England. Before the operation, OHIP rejected a request to pay for this procedure, stating it was experimental, and rejected a second request for reimbursement upon Flora’s return to Ontario. This decision was upheld by the Health Services Appeal Board, which ruled the treatment Flora received in England was not generally accepted in Ontario for a person with his medical condition. The Board further ruled that it was acceptable to consider the limited availability of resources in ensuring that patients with a higher chance of recovery receive a priority. On appeal to Divisional Court, the court upheld the Board’s decision. The court held Flora’s treatment was not an insured service and denying funding did not violate his Charter rights.
Importantly, the court distinguished this case from the 2005 Supreme Court of Canada decision in Chaouilli v. Canada (Attorney-General). There, Québec had prohibited an individual from purchasing private insurance and violated a Charter right by depriving the individual of the chance to avoid a life-threatening delay in accessing treatment. Here, there was no similar Charter violation since Ontario health insurance regulations did not prohibit Flora from obtaining and personally paying for out-of-country private medical services. The court found a government scheme that provides health care is not obligated to include all services possible to save lives in all circumstances.
Lomas v. Rio Algoma Ltd.Lomas, a retiree of Rio Algoma Ltd. and beneficiary under its pension plan, claimed Rio’s trust agreement contained exclusive benefit language that prohibited it from using any part of the trust fund for purposes other than providing benefits for plan participants, which meant any surplus belonged to plan members. The employer brought a motion to strike paragraphs in the claim seeking an order to have the plan wound up or, in the alternative, an order directing the employer to make an application to the Superintendent of Financial Services pursuant to the Ontario PBA to have the plan wound up.
The Ontario Superior Court followed the Supreme Court of Canada ruling in Buschau v. Rogers Communications Inc. and struck out the paragraphs seeking an order to have the plan wound up. The Supreme Court had stated it did not have authority to order a wind-up since that authority was held by the Superintendent. The Ontario court, however, found that the issue of whether it had the authority to make an order to direct the employer to seek a partial wind-up pursuant to the PBA was a novel one warranting a hearing and, as such, did not strike this paragraph from the claim. Leave to appeal to the Divisional Court has been granted.
Recent OSFI Decision inBuschau. Following Buschau, the legal representative of members and former members of the Pension Plan for Employees of Premier Cable Systems Limited, and legal representative of Rogers Communications Incorporated (RCI) and Rogers Cable Communications Inc. (employer and administrator of the Premier Plan) made submissions to OSFI concerning the Pension Plan for Employees of Rogers Communications Inc. and, in particular, the portion of that plan previously known as the Premier Plan. In summary, the members requested that OSFI:
- Consider the Premier Plan already terminated; or
- Terminate the Premier Plan; or
- Direct Rogers to terminate the Premier Plan, and
- After termination of the Premier Plan, remove the current administrator of the Premier Plan; and
- After termination, wind up the Premier Plan by allowing the fund to be used to buy annuities to cover pension benefits, with the balance of the surplus distributed to members.
RCI argued the merger of the RCI Plan and Premier Plan was not completed because of past court decisions that prevented RCI from completing the merger. Following the Supreme Court’s decision, RCI advised it had decided to revoke the merger, thereby separating the Premier Plan and RCI Plan. RCI further submitted it had decided to amend the Premier Plan by reopening it to a new class of employees.
On the basis of the foregoing submissions, OSFI decided:
- The decision by RCI to revoke the merger of the Premier Plan and RCI Plan and the reopening of the Premier Plan did not contravene the terms of the Premier Plan or the federal PBSA;
- As a factual matter, the Premier Plan had not been terminated under the PBSA or by the employer;
- The Premier Plan had not "terminated" within the meaning of the PBSA; and
- Not to exercise the Superintendent’s discretion to declare the Premier Plan terminated.
On the question of termination by the regulator, either directly by way of declaration or by directing the employer or administrator to terminate a plan, the decision noted that this was "an extreme measure, usually done only after other regulatory intervention measures have failed." The decision states termination may be appropriate "where the pension benefits are jeopardized, the plan’s funding level is not in accordance with the PBSA and cannot be rectified or the purpose of the plan is frustrated."
On the amendments to reopen the Premier Plan, the decision notes that while the Premier Plan had been closed to new members since 1984, no submissions were made that the closure amendment was irrevocable. Further, the decision includes a review of the relevant plan terms and concludes they permitted the company’s proposed actions of revoking the merger of the Premier Plan with the RCI Plan and reopening the former plan to new members. In conclusion, the decision states "in deciding to revoke the merger and to reopen the [Premier] Plan to new employees, RCI and Cable Inc. are not acting contrary to safe and sound financial or business practices, are not jeopardizing the pension benefits of the members, and are not contravening the PBSA nor the terms of the [Premier] Plan."
Liability Of Actuaries
R v. Norton.Charges against Norton related to actuarial valuation reports prepared in respect of two Slater Steel pension plans. The reports allegedly "improperly, and contrary to the [PBA] and the Regulations overstated the value of the two plans’ assets such that Slater was not obliged to make certain contributions to these pension funds." The charges under the PBA alleged many statutory breaches, including breach of standard of care requirements. The matter was heard by the Ontario Court of Justice and, at trial, Norton was acquitted of the charges.
The court found the Crown had failed to prove the essential ingredients of the charges. In particular, the court found the expert report relied upon by the Crown raised issues of reliability because it evidenced influence by the regulator. The court noted it is "crystal clear" that the expert’s primary responsibility is to the court and, as such, his report must be objective and neutral and be drafted without any interest in the outcome of the litigation or prosecution. The court noted the onus was on the Crown to prove its case and the defence was not required to file an expert report of its own. The court found the Crown’s expert report did not meet the required standard and, therefore, was not to be given much weight. The court concluded that the Crown had not proved the essential elements of the offences with which Norton was charged. On this basis, the charges were dismissed.
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