The Supreme Court of Canada recently rendered a landmark
decision for employers and pension plans in Canada. Its decision in
Kerry (Canada) Inc. v. DCA Employees
Pension Committee lessens the uncertainty that had reigned
with respect to using pension trust assets to take defined
contribution holidays and to pay pension plan expenses, which the
employers in this case had done.
Defined Contribution Holidays
On the subject of defined contribution holidays, five of the
seven justices who heard the matter agreed with the Ontario Court
of Appeal that it is not unlawful, under either the Pension
Benefits Act (Ontario) or the common law, for the employer to
also apply the surplus in the trust fund to take contribution
holidays in respect of the defined contribution members of a
pension plan, where the plan has both a defined benefit part and a
defined contribution part. They also agreed that the members of
both parts are beneficiaries of the pension trust fund, and that
the employer may lawfully take contribution holidays in respect of
the defined benefit part.
Pension Plans Expenses
On the subject of pension plans expenses, the court held that
unless an employer has clearly committed to paying plan expenses,
it is not obliged to pay such expenses. In this case, the employer
had committed to paying trust expenses and had continued doing so.
However, the employer had neither committed nor paid plan expenses
such as actuarial, legal and accounting in the administration of
the disputed plans, and the employer may charge reasonable and
bona fide plan expenses to the pension trust fund. Unlike
the Ontario Court of Appeal, the Supreme Court saw no differences
between expenses paid to third-party service providers and payment
for in-house administration provided by the employer, provided that
in each case the expense was reasonable and bona fide.
Amending Plan to Charge Expenses to Trust Fund
The Supreme Court also held that the amendment of a pension plan
to allow the employer to charge pension plan expenses to the trust
fund is not prohibited merely because the trust agreement governing
the terms of the trust or the pension plan (or both) contains an
"exclusive benefit" clause. However, expenses incurred to
review the plan terms in support of a decision to add a defined
contribution provision was for the sole benefit of the employer,
and should not be charged to the pension plan.
Tribunal Lacks Jurisdiction to Award Costs
Finally, with respect to cost awards in litigation of this type,
the Supreme Court upheld the Financial Services Tribunal's
ruling that the latter has no jurisdiction to order litigation
costs payable from a pension fund where the fund is not a party to
the proceeding (as in this case). While a court has authority to
order litigation costs be paid from a pension trust fund, in cases
where the litigation is not for the advantage of all of the pension
plan's beneficiaries, the matter is "adversarial" and
such costs should not be awarded from the pension trust fund.
Tips for Employers
Kerry addresses previous uncertainty regarding the
payment of pension plan administrative expenses from pension plan
funds and the use of pension plan surplus to take contribution
holidays in respect of payment of defined contribution benefits
where a pension plan has both defined benefit and defined
What should employers bear in mind?
In each instance, a thorough review should be conducted of the
plan provisions, trust agreements, previous plan documents and
other materials (such as employee communications regarding
benefits) to ensure that the pension plan does not prohibit the
contribution holiday or oblige the employer to pay administrative
expenses. Review of plan documents may also determine if it is
possible to amend the plan to permit these provisions.
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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