Over the last 20 years, the Courts in Canada have struggled with Pension Plan Administrators and Sponsors’ legal obligations as well as the legal rights of Plan Members in Defined Benefit Pension Plans. Luckily, in the last few years, some clarity has begun to emerge from the Supreme Court of Canada regarding these issues and this has been good news for Pension Plan Administrators and Sponsors.
In Buschau v. Rogers Communications Inc., 2006 SCC 281 and Nolan v. Kerry (Canada) Inc., 2009 SCC 39, the Supreme Court of Canada decided cases in a manner that clearly favoured Plan Administrators and Sponsors. In Buschau, the Court ruled that members did not have the right to unilaterally terminate a Pension Plan in order to access the surplus funds available after paying out all of the defined benefits (this is known as an “actuarial surplus”). In Nolan, the Court ruled that the Plan Administrator had the right to pay pension plan expenses from the pension plan as opposed to paying those expenses themselves. In addition, the Court ruled that the “holiday” from making pension plan contributions taken by the Plan Sponsor was legal. Both decisions clearly favoured the rights of Plan Administrators and Sponsors to manage the pension plan and limited the Member’s right to protection of their specific defined benefit but not to a portion of the actuarial surplus.
On October 7, 2010, the Supreme Court of Canada continued this trend in Burke v. Hudson’s Bay Co., 2010 SCC 34. In the 1990s, the Hudson’s Bay Co. had sold its northern store division and transferred approximately 1200 employees. As part of the sale, it transferred pension plan assets necessary to pay the defined benefits of the 1200 employees but not a share of the actuarial surplus. It has also being paying plan administration expenses out of the pension plan fund. The Supreme Court of Canada ruled that (1) there was no obligation to transfer a portion of actuarial surplus with the transfer of the 1200 employees as the employees had no right to the surplus; and (2) the payment of administration expenses from the pension plan fund was legal. As with Buschau and Nolan, Burke will be greeted with relief from the pension plan industry as it is consistent with industry practice.
A note of caution does, however, need to be heard. In Burke, the Supreme Court of Canada went to great lengths to review the pension plan documentation and to state that their decision was based, in part, on that documentation. Accordingly, while Burke is welcomed, it cannot be said to be a complete answer to all similar claims.
This blog is authored by members of the Litigation and Dispute Resolution Department. We follow new and interesting issues emerging in the legal and business communities. The wide range of experience among the members of our litigation group will provide a diverse and insightful examination of current legal trends and topics. Our goal is to provide a source of valuable information and insight on a wide variety of matters for our readers.