Canada: The Marine Atlantic Decision – Whether the Federal Pension Benefits Standards Act Requires Distribution Of Surplus On Partial Plan Termination

Copyright 2008, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Pension & Employee Benefits, July 2008

On June 26, 2008, the Federal Court of Appeal released a unanimous decision in Cousins et al. v. Attorney General of Canada and Marine Atlantic Inc. (Marine Atlantic) in which the court accepted the employer's arguments that the federal Pension Benefits Standards Act reflects a different legislative scheme from that in Ontario and, therefore, no surplus distribution on partial plan termination is required.


The appellants were former employees of Marine Atlantic Inc. (MAI) and former members of the Pension Plan for Employees of Marine Atlantic Inc. (the Plan). The Plan was a defined benefit plan, registered under the federal Pension Benefits Standards Act, 1985 (the PBSA) and regulated by the Office of the Superintendent of Financial Institutions (OSFI). In the years between 1997 and 2000, MAI implemented certain changes in its operations that resulted in the appellants and other employees having their employment terminated. In connection with those employment terminations, MAI implemented a number of partial terminations of the Plan. MAI prepared the related partial termination reports on the basis that there was no requirement to pay out a proportional share of surplus existing in the Plan at the time of the partial terminations to the affected members. OSFI took no steps to require such a distribution.

In July 2004, the Supreme Court of Canada released its decision in Monsanto Canada Inc. v. Ontario (Superintendent of Financial Institutions) (Monsanto) in which it determined that subsection 70(6) of the Ontario Pension Benefits Act (the PBA) requires the distribution of a proportional share of any surplus when a defined benefit pension plan is partially wound up. Following the release of Monsanto, counsel for the MAI appellants wrote to OSFI seeking to have Monsanto applied to the Plan pursuant to subsection 29(12) of the PBSA which provides as follows:

Where a plan is terminated in part, the rights of members affected shall not be less than what they would have been if the whole of the plan had been terminated on the same date as the partial termination.

The Superintendent declined to grant the relief requested by the appellants and, as a result, they commenced applications to the Federal Court for judicial review, in respect of each of three partial terminations.

2007 Decision Of The Federal Court

In a decision released on May 1, 2007, the Federal Court held that the applications in respect of two of the partial terminations were out of time but allowed the third application. The Federal Court reviewed the Superintendent's decision using a standard of correctness and concluded that the ordinary and grammatical sense of subsection 29(12) required members affected by a partial termination to be put in the same position in respect of distribution of surplus as those affected by a final termination, but as of the date of the partial termination. After considering the various rights that a plan member has in respect of a terminated plan pursuant to the PBSA, the applications judge found that the legislation's scheme was consistent with requiring that there be a proportional distribution of surplus on or shortly after partial termination.

Decision Of The Federal Court Of Appeal

MAI appealed to the Federal Court of Appeal. In its June 26 decision, the Federal Court of Appeal held that the proper standard of review to be applied to the Federal Superintendent's decision was reasonableness, a different standard than that applied by the Supreme Court of Canada in Monsanto to the similar decision by the Ontario Financial Services Tribunal. The Federal Court of Appeal went on to hold that under either a reasonableness or correctness standard, the Federal Court erred in interfering with the Superintendent's decision.

The Federal Court of Appeal held that the applications judge had erred in his interpretation of subsection 29(12) of the PBSA. According to the Court of Appeal, the distinctions between the Ontario legislation in Monsanto and the federal legislation at issue in Marine Atlantic are material and justified distinguishing Monsanto from the case at bar. Consequently, the court held that Monsanto could not be treated as binding authority for the proposition that members of a federally regulated pension plan have a right to a distribution of surplus at the time of a partial termination under the PBSA.

In noting the significant differences between the PBA and the PBSA, the court focussed on the definitions of "termination" and "wind up" in the respective legislation. In noting how these definitions affected the interpretation of subsection 29(12), the court stated the following:

[39] It is important to recognize that, for the purposes of the PBA, the termination of a pension plan coincides with the distribution of assets. The Ontario statute defines "wind-up" to mean the termination of a pension plan and the distribution of the assets of the pension fund. This strong and inextricable connection between the termination of a pension plan and the distribution of assets in the Ontario scheme underpinned the Supreme Court of Canada's reasoning in Monsanto. In contrast, such a connection is absent in the PBSA. Under the federal scheme, "termination" is defined to mean the distribution of the assets of a pension plan that has been terminated. While the PBSA contemplates that winding-up is a step that follows the termination of a pension plan, there is no provision in the PBSA that compels the distribution of assets to be done on the termination of a pension plan.


[43] The fact that, unlike the PBA, the PBSA treats "termination" and "winding-up" as separate and distinct terms that occur at two different periods of time is relevant to the interpretation of subsection 29(12) of the PBSA. Whereas subsection 70(6) of the PBA equalizes the rights of members on a partial and full wind-up, subsection 29(12) of the PBSA equalizes the rights of members on a partial and full termination. The PBSA defines a "surplus" to mean the amount by which the assets of a pension plan exceed its liabilities (i.e., the pension benefits owed to members). Assets and liabilities cannot be precisely determined until a plan is wound-up. As such, the existence of any actual or real surplus is determined at some point after the termination of a plan, and the distribution thereof would be the final step in the wind-up process. Accordingly, the federal scheme itself appears to preclude a right to a distribution of surplus from being a right on termination subject to subsection 29(12) of the PBSA. The suggestion by counsel for the applicants that while a right to a distribution of surplus crystallizes after the time of termination, such a right is somehow retroactive to the time of termination is without any merit. [emphasis added]

Marine Atlantic is a helpful decision in that it clarifies that the Monsanto decision should not be summarily imposed on other jurisdictions whose pensions legislation contains language similar to subsection 70(6) of the PBA—rather, should the issue of surplus distribution on partial wind-up reach the courts of other Canadian jurisdictions, a detailed analysis of that particular jurisdiction's pensions legislation will be required.

The case also provides insight on how deficits should be dealt with on termination of a federally registered plan. In identifying differences between the PBA and the PBSA, for purposes of reaching its decision on the surplus issue, the court also compared subsection 29(6) of the PBSA and subsection 75(1) of the PBA and stated at paragraph 44 that "subsection 29(6) of the PBSA is in fact different from subsection 75(1) of the PBA in that only the latter ensures that the employer is responsible for any deficit in the pension plan on wind-up, whereas the former limits the obligation of the employer, essentially, to the payment of accrued contribution obligations that are outstanding at the time of termination of the particular plan."

Supreme Court Of Canada

We will watch to see whether the respondents in this case seek leave to appeal the court's decision to the Supreme Court of Canada. This must be done by September 25, 2008.

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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