Background

The defined benefit plan in this decision was established in 1954 and the assets of the plan were held in a trust. In 1994, following an asset purchase transaction, Kerry Canada Inc. ("Kerry") became the administrator and sponsor for the pension plan. Kerry continued the practice of paying various plan administration expenses from the pension fund relating to the plan and taking into account actuarial surplus in determining the employer's contribution obligations. In January 2000, the plan was amended to add a new defined contribution provision. The amended plan text provided that defined benefit surplus could be applied towards Kerry's contribution obligations under the defined contribution provision. A number of former employees who were members of the plan objected to the 2000 amendments and requested the Ontario Superintendent of Financial Services to: (i) order Kerry to reimburse the plan for various expenses previously paid from the pension fund, (ii) order Kerry to reimburse the pension fund for various previous contribution holidays, and (iii) deny registration of the 2000 amendment to the plan. The issues were considered by the Financial Services Tribunal, the Divisional Court and the Court of Appeal for Ontario. The Supreme Court of Canada issued its decision on August 7, 2009 upholding the Court of Appeal's decision on the first two issues.

Plan Expenses Are Properly Payable from the Pension Fund

The Court held that Kerry was able to pay most of the administrative expenses from the pension fund. Since there are no provisions in the Ontario Pension Benefits Act (the "PBA") governing the payment of pension 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 agreed that a properly administered pension plan requires a number of services in addition to those of a trustee, including actuarial, accounting and counsel services. It stated that the payment of plan expenses is necessary to ensure the plan's continued integrity and existence. In this case, neither the plan text nor the trust agreement obligated Kerry to pay the plan expenses. As Kerry was under no obligation to pay the plan expenses, such expenses were the responsibility of the fund. Kerry was accordingly justified in paying expenses from the fund so long as those expenses were reasonable and necessary.

Contribution Holidays and Cross-Subsidization of the Defined Contribution Provision

A number of issues arose regarding the taking of contribution holidays through the use of pension fund surplus. The Court reiterated its analysis in its decision in Schmidt v. Air Products of Canada Ltd. that "unless the terms of the plan specifically preclude it, an employer is entitled to take a contribution holiday". The Court affirmed that the plan language did not preclude a contribution holiday. The Court held that the pension surplus originating with the defined benefit component of the pension plan could be used to fund employer contributions to the defined contribution provision of the same plan. The Court also concluded that there was one plan, there could be one trust created through a retroactive amendment, and that contribution holidays could be taken with respect to either or both of the defined benefit or defined contribution components of the plan.

This decision is based on an in-depth analysis and interpretation of Kerry's pension plan and trust documents. As each case turns on its own facts and the terms of the plan and trust at issue, plan sponsors should analyze their own pension plan and trust documents to ensure that the principles set out in this decision are applicable before paying expenses from a plan fund or using surplus.

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