Canada: Kerry Case Provides Welcome Guidance On Payment Of Plan Expenses And Contribution Holidays

The Supreme Court of Canada's decision in Nolan v. Kerry (Canada) Inc. is welcome news for pension plan sponsors. The Supreme Court found that pension plan administration expenses could generally be paid from the plan fund and that surplus in the defined benefit portion of the plan could be used to meet the employer's contribution obligations under the defined contribution component of the same plan. Nonetheless, this decision contains important legal considerations that sponsors need to be aware of when charging expenses to their pension plan or when making use of surplus pension assets. For example, the Supreme Court made it clear that the historic wording of plan and trust documents continues to be a key factor when considering the ability of employers to pay plan administration expenses from the plan fund and take contribution holidays.

On Thursday, August 13, 2009, members of Osler's Pensions and Benefits Department held an interactive webinar to review the impact of this decision. A podcast of that webinar will be posted on in the next couple of days.


In 1954, the employer established a defined benefit (DB) pension plan. In 1985, the plan was amended to permit plan expenses to be paid from the plan fund, and the employer began taking contribution holidays. The plan was again amended in 2000 to introduce a defined contribution (DC) component. After the DC component was implemented, the surplus in the DB component was also used by the employer to meet its DC funding obligations.

Plan members subsequently objected to the payment of plan expenses from the plan fund and the taking of DB and DC contribution holidays on the basis that such activities constituted a breach of trust. The Ontario Superintendent of Financial Services investigated the matter and took action on some of the members' complaints. A series of appeals followed. The Financial Services Tribunal (FST) rendered a decision that was generally favourable to the employer; however, the Ontario Divisional Court largely overturned that decision in favour of the plan members. The matter was eventually heard by the Ontario Court of Appeal which found that subject to the terms of the historical plan documents and certain other requirements, plan administration expenses could generally be paid from the plan fund, and the employer could use surplus to take contribution holidays with respect to the DB and DC components of the plan. The plan members appealed the Court of Appeal's decision to the Supreme Court of Canada.

Supreme Court of Canada Findings

The Supreme Court's decision, in part, focused on the proper standard of legal review to be applied to the FST's decision and the ability of the FST to award costs. However, of particular interest to plan sponsors are the Supreme Court's findings on the substantive issues of the case as follows:

  • When is it acceptable for pension plan expenses to be paid from the pension fund?
  • Is it permissible to use surplus assets in the DB part of the pension plan to take a contribution holiday with respect to: (i) the DB component and (ii) the DC component?

On these issues, the Supreme Court held as follows:

  • There is no statutory or common law authority that obliges an employer to pay the expenses of a pension plan and, as such, the obligations of the employer will be determined by the plan text and the trust documents. Where original plan documents are silent on the issue of plan expenses, such silence does not create an obligation requiring the employer to pay such expenses. Rather, as long as there is no provision in the plan documents specifying that an employer must pay plan expenses, "reasonable and bona fide expenses" may be paid from the plan fund. Further, there is no difference, in principle, between "internal" and "external" expenses – in other words, whether the services are provided by third parties or by the plan sponsor itself is immaterial, provided that such expenses are reasonable and legitimate (i.e., incurred for the administration of the plan).
  • The historic wording of the plan and trust documents is a key factor when considering the ability of employers to use surplus funds for contribution holidays. Surplus may be used by the employer to take contribution holidays under the DB portion of a plan as long as the employer's contribution formula provides for "actuarial discretion" – though there is no need to explicitly mention an "actuary."
  • Provided that the plan documents do not specifically prohibit it, a single plan can have DB and DC components whose members are beneficiaries of the same trust. In this case, the plan language, as amended, indicated that the plan was intended to apply to "all employees," making it permissible to designate the DC members as beneficiaries of the existing trust. Further, the DB members had no vested interest in the surplus of this ongoing plan. Thus, the employer was also entitled to apply the surplus in the DB component to its DC contribution obligations – once the required retroactive amendments were made.

Important Considerations for Pension Administration

This case will generally be viewed as positive for plan sponsors; however, as described below, employers and plan administrators need to be aware of the potential trouble spots that remain.

Plan Documents & Structure Are Key Factors

The Supreme Court made it clear that the historic wording of plan and trust documents (along with the resulting plan structure) continue to be a key determinant when considering the ability of employers to pay plan administration expenses from the plan fund and take contribution holidays. Further, when making changes to a plan, how those changes are structured and documented can impact whether the changes will have the intended result from a legal perspective. Plan sponsors need to be cognizant of this and ensure that proper advice is received when considering or implementing changes to their pension plans. Further, plan sponsors should also consider reviewing their plan terms and structure to confirm that prior changes have achieved the intended result and, if not, take corrective action, if possible.

Ability to Amend Plan that Requires Employer to Pay Plan Expenses Remains Unclear

The Supreme Court did not consider what happens when a pension plan provides that the employer is obligated to pay the plan expenses. For example, can the plan be amended to permit the expenses to be paid from the plan fund? If so, what is required (i.e., is a broad power of amendment sufficient or must the employer have reserved the power to revoke the trust)? However, the Supreme Court's broad interpretation of the "exclusive benefit"-type language found in many trust agreements may suggest that such a change would not be a revocation of trust.

Not All Expenses Can Be Charged to the Fund

Although the Supreme Court (unlike the Court of Appeal) made it clear that any distinction between internal and external expenses is "artificial," it did uphold the FST's finding that expenses that are incurred by the employer as "employer" (as opposed to being incurred by the employer as "plan administrator") should not be charged to the fund. As a result, it is still necessary to consider the type of expenses that may be charged to the fund on a case-by-case basis.

Communications with Plan Members

Unlike the Court of Appeal, the Supreme Court did not consider the manner in which the changes to the plan were communicated to plan members. The Court of Appeal was highly critical of the communications provided to plan members about the plan conversion, finding that the communications did not properly describe the legal effects of the conversion. Given that the Supreme Court did not comment on this issue, the Court of Appeal's high standard for communications with plan members appears to still apply and should be of concern to plan sponsors when sending any communications to plan members.

Evan Howard is a partner in the firm's Pensions & Benefits Department. Lesha Van Der Bij is a Knowledge Management lawyer in Osler's Pensions & Benefits and Employment & Labour Departments.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions