Canadian Employment & Pension Law - Employment Law | Labour Law | Pension and Benefits Law

Lyle Teichman -

A recent decision of the Ontario Superior Court (Court) illustrates complexities that can arise where a pension plan is partially wound up, triggering a requirement to settle surplus entitlements on the partial wind-up, and the surplus subsequently vanishes. 

In Kidd  v. The Canada Life Assurance Company et al, Canada Life had declared a partial wind-up of the Canada Life Canadian Pension Plan (Plan) in 2003 in relation to members who were terminated or retired as a result of the integration of Canada Life and Great West Life Assurance Company (the Integration Group).  The Integration Group had commenced a class to determine, amongst other issues, the ownership of surplus on a partial windup of the Plan.  The parties settled the action and under the terms of settlement Canada Life agreed to distribute approximately 70% of the estimated partial wind-up surplus to, amongst others, the Integration Group.  The Integration Group members were informed that their estimated share of the surplus was worth approximately $55 million.  As part of the settlement, Canada Life would in effect restart its pension plan under a new trust (the Ongoing Plan), which would receive the assets from the wound-up portion of the Plan.  The plaintiffs in the class action and Canada Life successfully campaigned to secure the support of the class members for the proposed settlement and the settlement was ultimately approved by the court (the Approved Settlement).  Class counsel was to receive approximately $5 million in fees and disbursements under the Approved Settlement.

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Carla Hanneman and Lyle Teichman -

Equity-based incentive plans have in recent years become a common component of the compensation package for executive employees in Canada.  Employers often design the plans in such a way as to enable the employer to claim a tax deduction for the value of the equity-based compensation.  In the case of treasury shares issued under stock bonus plans, the Canada Revenue Agency (CRA) has historically taken the position that the value of treasury shares issued under such plans is not deductible by the employer for tax purposes.  However, a recent decision of the Tax Court of Canada allowed the employer to deduct the fair market value of treasury shares issued to executive employees under a discretionary stock bonus program.

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Luc Vaillancourt -

In a recent decision, the Ontario Court of Appeal (the Court) upheld a motion judge’s interpretation of the plain meaning of the pension documents and denied a former employee’s claim to an unreduced pension at 62.

Facts:

Mr. Creber, a senior VP and CFO of Revios Canada Ltd. (the Company), was terminated in 2006 at age 52. While employed by the Company, Mr. Creber was a member of its registered pension plan (the Plan) and Executive Supplementary Pension Agreement (the ESPA). The Company started an action in which it sought a declaration that Mr. Creber was not entitled to an unreduced pension at 62 under either the Plan or the ESPA. Mr. Creber defended the action and counter claimed for the benefit. The motion judge granted the declaration and M. Creber appealed. Mr. Creber argued that the provision of the ESPA which provided an unreduced pension at 62 to employees who had taken “early retirement” applied to him, even though under the Plan he was only eligible for a deferred pension (which he could have started receiving at 55). Mr. Creber advanced that, as “early retirement” was not defined in either the Plan or the ESPA, his right under the Plan to receive his deferred pension before the “normal retirement date” of 65, created another “early retirement date”, in addition to the right to retire at age 62.

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Gary Nachshen

As the Christmas holiday season approaches, there has been a barrage of recent developments on the Canadian pension law front.

First, on December 8, Ontario's Bill 120 received royal assent. Bill 120 is the second phase of Ontario's Pension Benefits Act reform, dealing with such issues as plan expenses, contribution holidays, surplus withdrawals, and target benefits. The bill as finally adopted contains several changes from the version originally introduced in October, most notably with regard to the surplus withdrawal rules. However, the government refused to budge on some other much-criticized provisions of the original Bill 120, such as certain requirements for the payment of administrative expenses out of plan assets.

Second, on December 10, Quebec's Bill 129 was adopted. Bill 129 tweaks a number of provisions in Quebec's Supplemental Pension Plans Act. One Bill 129 highlight is an extension of the 2009 introduction of retirees' right to transfer their pension assets out of their pension plan to the Quebec pension regulator, the Régie des rentes du Québec. The initial, 2009 version of that right applied only to pension plans of bankrupt employers. Bill 129 now extends the right to pension plans of employers under CCAA protection, e.g. Nortel.

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Gary Nachshen

The federal government has just published legislative proposals that would relax one of the conditions for tax-exempt pension fund investment corporation status under the Income Tax Act. That is, under the proposals, there would no longer be a prohibition against such a corporation issuing "debt obligations" and the prohibition would be narrowed to cover issuing "bonds, notes, debentures or similar obligations". The change would be retroactive to 1994.

We believe that these amendments, if adopted, should eliminate concerns that, for example, the assignment to a third party of a right to receive an investor's capital contribution to a limited partnership would be treated as an impermissible debt obligation, where that investor was a pension fund investment corporation.

Interested parties are invited by the Department of Finance to provide comments on the proposals by December 5.

On March 29, 2010, the Canadian government introduced a series of proposed amendments to the legislation governing federally-registered pension plans, the Pension Benefits Standards Act, 1985 (PBSA). The amendments were slipped quietly into omnibus legislation (Bill C-9) covering a multitude of tax and other matters and stretching some 1,000 pages. However, this stealth introduction should not obscure the fact that these amendments constitute the most extensive reform of federal pension legislation, which applies to some of the largest pension plans in the country, since the PBSA was enacted all the way back in the mid-1980s.

The proposed amendments are designed for the most part to implement a number of the measures announced in the Department of Finance's October 27, 2009 backgrounder (which measures were considered in our November 5, 2009 newsletter entitled Ottawa takes a swing at pension reform). Because the federal government has decided to move to immediate vesting of pension benefits, it has become necessary to revise numerous provisions of the PBSA that currently contemplate the refund of employee contributions to unvested plan members. The deletion of the various references to such refunds, as well as certain changes around the notions of plan beneficiaries and former members, account for by far the largest number of PBSA provisions affected by Bill C-9.

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On August 7, the Supreme Court of Canada (SCC) released its highly anticipated decision in the Kerry case. The decision provides certainty and direction on a number of issues relevant to nearly every pension plan sponsor in Canada. The decision sets out the following principles:

• Where the plan documents do not forbid it, defined benefit (DB) surplus may be used to fund (i.e. to "cross-subsidize") defined contribution (DC) contributions;
• Where the plan documents do not forbid it, reasonable and appropriate plan expenses may be paid out of the pension fund;
• Where expenses may be paid out of the pension fund, employers that perform some of their pension plan administration in-house may charge reasonable expenses associated with such administration to the fund
• Retroactive amendments to pension plans are valid if authorized by statute;
• Costs associated with pension litigation will not be automatically paid out of the pension fund; and
• The Ontario Financial Services Tribunal will receive considerable deference in its decisions concerning the interpretation of a pension plan text or the interplay between the Pension Benefits Act and a plan text.

More generally, Kerry sounds a retreat from the rote application of trust-law principles to the resolution of pension plan disputes, an approach that has held sway in the courts for much of the past two decades in Canada.

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