Canada: FSCO Policies And FST Decisions

Last Updated: September 16 2007

Article by Paul Dimitriadis, © 2007, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Pension and Employee Benefits, August 2007

New FSCO Policies

S900-751 – Undistributed Surplus on Full or Partial Wind-Up. This replaces S900-750 (Surplus Remaining in Wound Up Plans). Following the Supreme Court’s Monsanto decision, the policy states that on a partial wind-up, surplus assets held in the wound-up portion of the plan are required to be allocated and distributed at the time of the partial wind-up. Of note, the policy provides that until the distribution of all assets is completed: (i) the assets of the plan’s fund, or the wound-up portion, should be invested in accordance with the statement of investment policies and procedures (amended if necessary) and in a manner that reflects the size and nature of the benefit and surplus obligations; and (ii) the actual or notional split of the assets of the partial wind-up must be maintained.

S900-901 – Allocation of Surplus to Members, Former Members and Other Persons on Wind-Up. This replaces S900-300 (Distribution to Plan Beneficiaries on Wind up) and S900-900 (Allocation of Surplus Distributed to Members and Former Members on Wind up). It also addresses the Monsanto decision, stating that on a partial wind-up of a pension plan, surplus allocated to members and former members must be distributed from the wound-up portion of the plan.

S900-910 – Distribution of Surplus to Employer on Partial Wind-Up. This deals with the treatment of surplus allocated to the employer on a partial wind-up. The policy outlines that, to distribute employer surplus, the employer may choose: (i) to receive surplus in cash; (ii) to allocate it to the ongoing portion of the plan; or some combination of (i) and (ii). This is the first time FSCO has acknowledged in a policy that employer surplus may be allocated to the ongoing portion of the plan. The employer’s choice for distribution may form part of the surplus sharing agreement or may be decided by the employer after the completion of such agreement. Of note, FSCO takes the position that any portion allocated to the ongoing portion of the plan becomes simply an asset of the pension plan, not a prepayment or contribution, and does not form part of the plan’s prior year credit balance. As well, FSCO’s position is that the employer will have no more claim, control or ownership of such surplus than it would over any other asset in the ongoing pension plan.

W100-231 – Distribution of Benefits on Partial Wind Up. This replaces W100-230 (Individual Statement at Wind up). Of note, the policy provides that all immediate and deferred pensions in the wound-up portion of the plan must be provided though the purchase of life annuities.

Financial Services Tribunal Decisions

The Great Atlantic & Pacific Company of Canada, Limited v. Superintendent of Financial Services. This was a hearing in respect of a Notice of Proposal issued by the Superintendent of Financial Services proposing to refuse to consent to a return of an overpayment from a pension fund. Great Atlantic (Applicant) operated a bakery facility. Operations ended on March 4, 2000. The pension plan was wound up effective March 4, 2000. The wind-up report submitted to the Superintendent indicated the wind-up deficit was CAD 997,673, but stated the final amount of the contribution required from the Applicant to fund the deficit would not be known until all the plan’s benefit obligations were settled.

The Superintendent approved the wind-up report on September 29, 2000. The Applicant obtained an updated estimate of the deficit in the plan as at September 30, 2000. As a result of decreases in annuity purchase rates, the deficit was no greater than CAD 500,000. The Applicant made a lump-sum contribution to the plan on November 30, 2000 to fund the deficit. Vested members were entitled to a lump-sum or a pension. Individual elections were not completed until May 2001 and, as such, the annuity obligations were not settled until that time. Once the annuity obligations were fixed, the final contribution amount required to fund the deficit was determined to be CAD 354,639.

On October 2, 2001, the Applicant applied to the Superintendent for consent to the payment to the Applicant from the pension fund of the plan the amount of CAD 145,361, plus investment earnings. The Applicant characterized the amount as an overpayment of what was due as at July 31, 2001. The Applicant asked the Superintendent to extend the time, pursuant to section 105 of the Pension Benefits Act (Ontario). The Superintendent issued a Notice of Proposal refusing to consent to the Applicant’s request on the basis that the amount represented surplus, rather than an overpayment and to withdraw the amount, the application would have to comply with section 79 of the Act. The Superintendent also maintained that, even if the amount represented an overpayment, the application under subsection 78(4) of the Act was out of time and that an extension was not warranted in this case.

Upon hearing the arguments, a majority of the Tribunal held the facts supported an application under subsection 78(4) or subsection 79(3) of the Act. In the majority’s view, an employer ought to be able to elect between the two regimes where the facts support an application under either subsection of the Act. The majority stated its interpretation of the Act encourages early and full funding of deficits on plan wind-ups by removing the risk to the employer of being unable to recover any overfunding.

The Superintendent argued the Act and its Regulations both require the Applicant to proceed by way of a surplus withdrawal application. The majority held the Regulation had no application in this case since a report under subsection 32(1) was not filed nor was there a need for such a report since the deficit was funded before the first anniversary of the wind-up. Regarding the time limit for making the application, the majority held it was a procedural time limit capable of extension under section 105 of the Act. The majority concluded the Applicant was entitled to invoke section 105 of the Act and that there were reasonable grounds for the Applicant applying for that extension. The Tribunal ordered the Superintendent to refrain from carrying out the proposal in the Notice of Proposal, to extend the time limit for making the application under subsection 78(4) of the Act and to consent to the request contained in the Applicant’s application for the payment to it of CAD 145,361, plus investment earnings up to the date of payment.

CAW-Canada and its Locals 112 and 673 v. Superintendent of Financial Services and SPAR Aerospace Limited. This was a jurisdictional hearing on a motion by the Superintendent and SPAR Aerospace Limited. CAW and Locals 112 and 673 filed a request that the Superintendent order a partial wind-up of two pension plans for employees represented by the CAW who work at SPAR facilities in Mississauga, Ontario. FSCO wrote to the CAW and advised it that the members of the plans were subject to the Pension Benefits Standards Act (Canada) (PBSA) and that the Act would not be applicable to the downsizing. The CAW filed a Notice of Appeal and a request for a hearing with the Tribunal seeking an order that the Superintendent be ordered to direct a partial wind-up of the plans. The Superintendent and SPAR opposed the order.

The Superintendent and SPAR asserted jurisdictional objections including: (i) the Tribunal lacks the jurisdiction to consider which legislation applies since that issue has already been dealt with by OSFI; and (ii) the Tribunal lacks the jurisdiction to embark on a hearing because the Act does not entitle the CAW to a hearing where the Superintendent has decided that it does not have jurisdiction over the pension plans in question.

The Tribunal held unanimously that the PBA entitles the CAW to a hearing and nothing OSFI has decided is a bar to the Tribunal hearing the CAW’s case. It dismissed the motion of the Superintendent and SPAR, which invited the Tribunal to decline to proceed with this matter. SPAR argued the Tribunal is not empowered to hold a hearing when the Superintendent has deferred to OSFI and not made a final decision. The Tribunal rejected this argument, stating that the inference from the relevant correspondence from the pension officer was that the Superintendent was refusing to make an order.

Further, prior Tribunal decisions have clearly established that the Superintendent’s refusal to make a wind-up order entitles the aggrieved party to apply to the Tribunal for a hearing. The Superintendent and SPAR argued that OSFI had already decided the issue and its decision operates as a bar to any inquiry by the Tribunal. They relied on the legal doctrines of: (i) issue estoppel; (ii) abuse of process; and (iii) the rule against collateral attack.

The Tribunal held issue estoppel did not apply since the CAW was not a party to any decision made by OSFI and, as a result, a pre-condition for the application of issue estoppel was not met. The rule against collateral attack was also held not to be applicable since it only applies where success in the second proceeding would nullify or render meaningless the result of the first proceeding. This would not be the case since a decision to order a partial wind-up would not operate to nullify the federal registration of the plans. Finally, the Tribunal held the CAW’s application for a partial wind-up order was not an abuse of process as it was not acting improperly or misusing the processes under the Act.

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.

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