Canada: Case Law Update Regulatory Round Up And Ontario Solvency Proposals

Copyright 2008, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Pension & Employee Benefits December 2008

In view of our decision to hold a special Pension & Employee Benefits seminar in late November 2008 in conjunction with Watson Wyatt Worldwide to discuss the implications of the Final Report of the Ontario Expert Commission on Pensions, we did not hold our regular semi-annual seminar.

We have, however, prepared our customary summary of Recent Case Law Developments and Regulatory Round Up which we are attaching to the end of this bulletin.

Highlights of the Regulatory Round up

  • Introduction of the federal Wage Earner Protection Program Act
  • Clarification from CRA on classification of a SERP versus an SDA
  • Additional provinces deal with the introduction of phased retirement
  • Quebec legislative amendments to deal with withdrawals of employers under MEPPs
  • Preliminary report from CAPSA on Multi-jurisdictional Pension Plans
  • Ontario Law Commission Report on Division of Pensions on Marriage Breakdowns

Recent Case Law Developments

The developments contain some further decisions on cases followed in prior summaries, as well as a few new issues. The highlights include:

  • Further discussion of surplus and expenses in Burke v. Hudson's Bay Company
  • Monsanto not applied to federal PBSA in Cousins v. Marine Atlantic
  • Additional developments on Buschau
  • Discussion of costs in Patrick v. Telus
  • Insured pension litigation coverage in Michelin v. Ace Ina Insurance

Solvency Funding Relief

In addition, on December 16, 2008, the Ontario government announced that it will introduce legislation this spring to provide pension plans with solvency funding relief, primarily through an extension of solvency amortization periods from five to 10 years with the consent of active members or their collective bargaining agent and retired plan members. The legislation, likely to be implemented through regulations, will be retroactive to September 30, 2008 if passed.

The announcement also stated that the government would be looking for approval to provide the following other forms of relief:

  • " The consolidation of previous funding schedules
  • One year deferral of the start of catch-up payments required on the filing of valuation reports until the beginning of the next fiscal year, in the same manner as jointly sponsored pension plans
  • Permitting greater flexibility in the use of actuarial gains to reduce annual cash payments by plan sponsors
  • Adopting the revised Canadian Institute of Actuaries' Standard of Practice for Determining Pension Commuted Values for Solvency Valuations"

There were also additional member protections in the announcement which were said to be under consideration:

  • " Enhanced notice to active and retired plan members
  • Accelerated funding of benefit improvements
  • Temporary limitations going-forward on contribution holidays where the plan actuary indicates the plan is no longer in a surplus position"

While the announcement provides only limited details on the proposals, plan sponsors may wish to raise with the government a number of concerns arising from the announcement including:

1. What limitations are proposed on contribution holidays? In this current economic environment any potential increase in employer costs will be a significant concern.

2. Why using letters of credit as an alternative to member consent for the extension of the solvency amortization periods was not included in the proposals as it has been in other jurisdictions.

3. What is a practical method of obtaining member consent in a non-union environment and, in particular, would a failure of a specified percentage (e.g., 30%) of objectors be sufficient?

To view our Recent Case Law Developments, please click here.

To view our Regulatory Round Up, please click here.

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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