SCC Asked to Clarify Pension Law
On January 31st the Supreme Court of Canada (“SCC”) granted leave to appeal in Kerry (Canada) Inc v DCA Pension Committee, 2007 ONCA 416, a case which asks the SCC to determine the appropriate conduct of employers managing employee pension funds. This case will be watched closely by employee-groups and employers alike; however, it will also be heard at the same time that such groups are making their submissions to the Ontario Expert Commission on Pensions, which is undertaking a detailed examination of the legislation governing many of the legal issues arising in this case.
The origins of this case go back to 1954, when the Canadian Doughnut Company Limited established a pension plan for its employees. The pension plan set up a trust, funded through company and employee contributions. It continues to operate and is governed by the Pension Benefits Act, RSO 1990, c P.8.
Over the years, Canadian Doughnut Company Limited went through a variety of ownership changes, and now operates under the name Kerry (Canada) Inc. During that time, the pension fund has operated at a surplus and plan members have always received their full pension benefits.
Since the mid-1970s, the plan went through a series of amendments and beginning in 1985, the company started to take “contribution holidays”. By 2001, the company had taken contribution holidays of about $1.5 million. It was also around this time that the company stopped covering the pension plan’s expenses, opting to pay for the administration of the pension plan out of the plan’s surplus funds.
In 2000, former employees of Kerry Inc. and members of the plan (“the Committee”) asked Ontario’s Superintendent of Financial Services to investigate irregularities in the administration of the pension plan. After the investigation, the Superintendent issued two Notices of Proposal. The first proposed order stated that Kerry Inc. was required to reimburse the fund for expenses paid from the fund after 1985. The second stated that the superintendent was refusing to order Kerry Inc. to pay the amounts that had been taken away from the fund through the contribution holidays.
Unhappy with the first proposed order, Kerry Inc. sought a hearing at the Ontario Financial Services Tribunal. The Committee also requested a hearing regarding the contribution holidays taken by the employer. The matters were heard separately, but both hearings resulted in favour of Kerry Inc.’s position. The Tribunal ordered that the majority of the pension plan’s expenses could be paid from the surpluses of the pension fund and that Kerry Inc. was entitled to take contribution holidays.
The Committee appealed these decisions to the Ontario Divisional Court, where both appeals were heard together. The Divisional Court largely overturned the Tribunal’s decisions on both matters. Kerry Inc. appealed the Divisional Court’s decision to the Ontario Court of Appeal.
The Court of Appeal’s decision was written by Justice Gillese, with Justice Laskin and Justice Rouleau signing on to the judgment. It allowed Kerry Inc.’s appeal, restored the decisions of the Tribunal and set aside the judgment of the Divisional Court.
This case will be watched very closely by employee groups and the business community. As Justice Gillese states in the first paragraph of her judgment,
“The Supreme Court of Canada has heard a number of major pension cases in the past decade. In its decisions, the Supreme Court has provided much needed guidance in this new and emerging area of law. As this case shows, however, a number of significant questions remain to be decided.”
The SCC will have to provide even more guidance on whether pension plan expenses can be paid for by a pension fund and when surplus pension funds can be used to satisfy a company’s contribution obligations.
In regards to administration law, the SCC may have to determine the proper standard of review when dealing with cases arising out of the Financial Services Tribunal. The Division Court opted to adopt the less-deferential “correctness” standard when determining whether the pension plan expenses could be paid out of the fund. In contrast, the Court of Appeal found that the proper standard for all of the issues raised by the case was “reasonableness”. It will be up to the SCC to determine which approach is most appropriate.
The eventual outcome of the case will have implications that reach much further than the parties involved, such as other companies that have been conducting similar practices of using pension funds to pay for the administration of a pension plan.
Future Legislative Change
The significance of this case may be highlighted or hindered by the Ontario Legislature’s potential response to the uncertainty found in current pension laws. This case gets to the SCC at the same time that Ontario is conducting an in-depth review of its pension legislation. The Pension Benefits Act has not been substantially updated for over twenty years. As a result, the Ontario government has set up the Expert Commission on Pensions.
This commission, chaired by former Dean of Osgoode Law School Harry Arthurs, has a mandate to “…examine the legislation that governs the funding of defined benefit pension plans in Ontario, the rules relating to pension deficits and surpluses, and other issues relating to the security, viability and sustainability of the pension system in Ontario.” It will do this by focusing on the areas of pension plan funding and surplus, the Pension Benefits Guarantee Fund, full and partial plan wind ups, plan splits and mergers, asset transfers between pension plans, and funding of defined benefit multi-employer pension plans.
The committee is scheduled to report back to the government this summer. Its findings will likely spark legislative change which hopefully provides employers and employees with clear guidance on the proper management of pension plans.