Canada: Plan Mergers After The ING Case

A recent Ontario Divisional Court decision suggests that some plan mergers are permissible and can be distinguished from the Aegon Canada Inc. v. ING Canada Inc. case.

In 2000, National Steel Car Limited (NSC) filed an application pursuant to section 81 of the Pension Benefits Act (Ontario) (the PBA) to transfer the assets of its pension plan for salaried employees (the Salaried Plan) to its pension plan for hourly-paid employees (the Hourly Plan). The Salaried Plan had a substantial surplus while the Hourly Plan had an unfunded liability. Following the transfer, the merged plan would still have a surplus and no solvency deficiency.The Salaried Plan contained express provisions granting the employer the right to merge that plan with another.

The Superintendent consented to the transfer and the appellants, representatives of the Salaried Plan, requested a hearing under section 89 of the PBA in order to challenge that decision. The majority of the Financial Services Tribunal (the Tribunal) determined that it did not have jurisdiction to conduct the hearing, however they did go on to consider the merits of the case, in the event that they were wrong in their decision regarding jurisdiction. The Tribunal unanimously rejected the appellants’ argument that the asset transfer did not adequately protect "other benefits" of the members of the Salaried Plan.

The Ontario Divisional Court (the Court) held that the Tribunal had jurisdiction to hear the appellants’ case. The issue arose out of the wording of s. 89(4) of the PBA, which provides that the Superintendent must give notice to "the applicant" of any refusal to give approval or consent. NSC argued, and the majority of the Tribunal agreed, that this meant that only NSC had the right to contest the Superintendent’s decision at a hearing, as they were the only applicant for approval or consent. The Court rejected this argument stating that both the statutory interpretation and case law supported the conclusion that there was a need for fair process, which included a right of review for both parties.

Quite apart from the question of plan merger, this is one of the most important aspects of the decision in Baxter because it follows the decision of the Supreme Court of Canada in Monsanto Canada Inc. v. Superintendent of Financial Services, on the question of the appropriate standard of review of a decision of the Tribunal. In Baxter, the Court was able to distinguish the statutory provision under consideration (subsection 81(5) of the PBA) and the provision of the PBA considered in the Monsanto case (subsection 70(6)). Using the four criteria in the Pushpanathan v. Canada (Minister of Citizenship and Immigration), the Court concluded:

One. The lack of an express privative clause in the PBA and the existence of a general statutory right of appeal in section 91 of the PBA supports a less deferential standard of review.

Two. In evaluating the expertise of the Tribunal relative to the courts with respect to subsection 81(5), the Court concluded that the provision involves more than a question of pure law, and instead, requires the balancing of "multiple sets of competing constituencies".

Three. The question of whether an asset transfer complies with subsection 81(5) is a question that was "at the heart or core of the Tribunal’s regulatory mandate and expertise and the interpretation of that provision is squarely within the Tribunal’s jurisdiction".

Four. The nature of the problem fell within the specialized administrative expertise of the Tribunal.

In consideration of all of these factors, the Court concluded that the Tribunal’s decision should be accorded some deference and that the appropriate standard of review was reasonableness simpliciter, rather than correctness.

The appellants argued that the funding protection built into the Salaried Plan constituted "other benefits" under s. 81(5) of the PBA and therefore must be protected before the Superintendent could agree to a transfer of pension assets. They argued that since "ancillary benefits" is defined not to include surplus or assets of the pension plan, the term "other benefits" must be given a broader reading. Otherwise the Legislature would have used the narrower term "ancillary". They also argued that the Superintendent had a duty to consider the possibility of surplus dilution resulting from the merger.

The Court, instead, agreed with the respondents and held that the term "other benefits" meant benefits provided by a pension plan that are not pension benefits or ancillary benefits, such as disability benefits or income replacement benefits. "Other benefits" does not include actuarial surplus, because if it did, an employer would be prohibited from taking any step that would dilute actuarial surplus, including taking contribution holidays and adding new members. This result would be contrary to both the PBA and its regulations.

The Court distinguished this case from Aegon Canada Inc. v. ING Canada Inc. noting that the appellants failed to establish that the Salaried Plan was the subject of a trust and, even if there was a trust, the appellants did not establish that the terms of any such trust precluded the merger.

The Court also concluded that the decision to uphold the validity of the merger could be reconciled with the decision of the British Columbia Court of Appeal in Buschau v. Rogers Cable Systems Inc. The Court noted that in Buschau, the British Columbia Court of Appeal did not hold that the specific terms of the applicable trust precluded a merger, rather in the circumstances of that case, the applicable trust was closed and the beneficiaries sought to obtain distribution of the trust funds under the rule of Saunders v. Vautier with the result that the beneficiaries were entitled to segregation and an accounting of the assets in which they had established their beneficial entitlement. In effect, in the Buschau case, the merger proceeded, subject to segregation and accounting.

Hopefully, the NSC decision will cause the Financial Services Commission to broaden the permissible transfers and mergers.

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