Editor’s Note: Corrigendum released April 6, 2006. Original judgment has been corrected, with text of corrigendum appended.
COURT FILE NOS. 178/04 and 520/04
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
O’DRISCOLL, JARVIS AND MOLLOY JJ.
B E T W E E N :
ELAINE Nolan, GEORGE PHILLIPS, ELISABETH RUCCIA, KENNETH R. FULLER, PAUL CARTER, R.A. VARNEY and BILL FITZ, being members of the DCA EMPLOYEES PENSION COMMISSION representing certain of the members and former member of the Pension Plan for the Employees of Kerry (Canada) Inc.
Appellants (Applicants)
- and -
SUPERINTENDENT OF FINANCIAL SERVICES
Respondent (Respondent)
- and -
KERRY (CANADA) INC.
Respondents (Respondents)
CORRIGENDA
Counsel for the Superintendent of Financial Services Commission of Ontario, Ms. D. McPhail, wrote to the Registrar on March 24, 2006 and was kind enough to point out errors in the Court’s reasons, dated March 15, 2006.
With thanks to Ms. McPhail, the following corrections are made to those reasons:
(a) in the Table of Contents, the first sub-heading under the heading “E” should be called “The Pension Expenses Appeal”, not “The Pension Benefits Appeal”;
(b) in paragraph 44, the author cited should be Kathryn Bush, not Kathryn Busch;
(c) in paragraph 47, the first phrase should be “Counsel for the Appellants and counsel for the Superintendent” rather than “Counsel for the Appellants and counsel for the Tribunal”;
(d) in paragraph 70, there should be an end quotation mark at the end of the first sentence, after the phrase “in respect of the Fund in Part 1”;
(e) the case cited in paragraph 73, should be styled Aegon Canada Inc. v. ING Canada Inc. rather than Aegon Canada Inc. v. Wong;
(f) in paragraph 79, the quotation mark in the first line, before the phrase “invite comments to be submitted”, should be omitted;
(g) in paragraph 95, the sub-heading immediately above this paragraph should be changed from “The Pension Benefits Appeal” to “The Pension Expenses Appeal”;
(h) in paragraph 97, the reference to the Tribunal decision dated December 24, 2004 should be deleted. That Tribunal decision applied to the Tribunal hearing that gave rise to Appeal No. 520/04, not Appeal No. 178/04;
(i) in paragraph 99, the reference to Appeal No. 178/04 in the penultimate line should be changed to Appeal No. 520/04.
O’Driscoll J.
Jarvis J.
Molloy J.
Released:
COURT FILE NOS.: 178/04 and 520/04
DATE: 20060403
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
o’driscoll, jarvis and molloy jj.
B E T W E E N:
ELAINE NOLAN, GEORGE PHILLIPS, ELISAETH RUCCIA, KENNETH R. FULLER, PAUL CARTER, R.A. VARNEY and BILL FITZ, being members of the DCA EMPLOYEES PENSION COMMITTEE representing certain of the members and former member of the Pension Plan for the Employees of Kerry (Canada) Inc.
Appellants (Applicants)
- and -
SUPERINTENDENT OF FINANCIAL SERVICES
Respondent (Respondent)
- and -
KERRY (CANADA) INC.
Respondents (Respondents)
CORRIGENDA
THE COURT
Released: April 3, 2006
COURT FILE NOS. 178/04 and 520/04
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
B E T W E E N :
ELAINE NOLAN, GEORGE PHILLIPS, ELISABETH RUCCIA, KENNETH R. FULLER, PAUL CARTER, R.A. VARNEY and BILL FITZ, being members of the DCA EMPLOYEES PENSION COMMISSION representing certain of the members and former member of the Pension Plan for the Employees of Kerry (Canada) Inc.
Appellants (Applicants)
- and -
SUPERINTENDENT OF FINANCIAL SERVICES
Respondent (Respondent)
- and -
KERRY (CANADA) INC.
Respondents (Respondents)
INDEX
A. INTRODUCTION (paras 1-3)
B. NATURE OF PROCEEDINGS and STANDARD OF REVIEW (paras 4-9)
C. THE PENSION EXPENSES APPEAL (Appeal No. 178/04)
C1. ISSUE ONE: PAYMENT OF EXPENSES OUT OF PENSION FUNDS (paras 10-44)
Background Facts (paras 11-18)
Historically, who has paid the Plan’s expenses? (paras 19-21)
Relevant Statutory Provisions and Terms of the Plans and Agreements (para 22)
The Decision of the Tribunal (paras 23-27)
Analysis (paras 28-43)
Conclusions as to Plan Expenses Issue (para 44)
C2. ISSUE TWO: JURISDICTION TO ORDER AMENDMENT
Decision of the Tribunal and Position of the Parties (paras 46-47)
Relevant Statutory Provisions (paras 48-52)
Conclusion as to Jurisdiction to Order Amendment (para 53)
D. CONTRIBUTION HOLIDAY APPEAL (Appeal No. 520/04)
D1. ISSUE ONE: CONTRIBUTION HOLIDAY (paras 54-66)
Relevant Statutory Provisions and Terms of the Plans and Agreements (paras 55-56)
Analysis (paras 57-64)
Conclusion as to Contribution Holiday (paras 65-66)
D2. ISSUE TWO: CROSS SUBSIDIZATION FOR EMPLOYER CONTRIBUTIONS (paras 67- 75)
Background Facts (para 68)
The Tribunal Decision (paras 69-70)
Analysis (paras 71-74)
Conclusion as to Cross Subsidization (para 75)
D3. ISSUE THREE: NOTICE OF 2000 AMENDMENTS (paras 76-88)
Relevant Statutory Provisions (paras 76-77)
Background Facts (paras 78-81)
Decision of the Tribunal (paras 82-83)
Analysis (paras 84-87)
Conclusion as to Notice Requirement (para 88)
D4. ISSUE FOUR: COSTS BEFORE THE TRIBUNAL (paras 89-94)
Background (paras 89-93)
Conclusions as to Costs Before the Tribunal (para 94)
E. OVERALL CONCLUSIONS AND RESULTS OF THESE APPEALS (paras 95-101)
The Pension Expenses Appeal: Appeal No. 178/04 (paras 95-97)
The Contribution Holiday Appeal: Appeal No. 520/04 (para 98-99)
Costs of the Appeals in this Court (paras 100-101)
COURT FILE NOS.: 178/04 and 520/04
DATE: 20060315
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
o’driscoll, jarvis and molloy jj.
B E T W E E N:
ELAINE NOLAN, GEORGE PHILLIPS, ELISABETH RUCCIA, KENNETH R. FULLER, PAUL CARTER, R.A. VARNEY and BILL FITZ, being members of the DCA EMPLOYEES PENSION COMMITTEE representing certain of the members and former member of the Pension Plan for the Employees of Kerry (Canada) Inc.
Appellants (Applicants)
- and -
SUPERINTENDENT OF FINANCIAL SERVICES
Respondent (Respondent)
- and -
KERRY (CANADA) INC.
Respondents (Respondents)
A.N. Kaplan and E. Stam, for the Appellants
D. McPhail and M. Bailey for Superintendent of Financial Services
R.J. Walker and C. Tabbert, for Kerry (Canada) Inc.
Heard at Toronto: (a) Appeal 178/04 on March 31, and April 1, 2005 (b) Appeal 520/04 on April 18, 2005
THE COURT:
A. INTRODUCTION
[1] The appellants are former employees of Kerry (Canada) Inc. (or its predecessor companies) and are beneficiaries under the company’s pension plan. They appeal from two decisions of the Financial Services Tribunal, dated March 4, 2004 and September 1, 2004 relating to the pension plan. The appeals are brought under s. 91(1) of the Pensions Benefits Act, R.S.O. 1990, c. P.8. (PBA).
[2] The main issue in the first appeal (“the Plan Expenses Appeal”) is whether the terms of the pension plan permit the employer to pay certain administrative expenses out of pension plan funds. There is also an issue as to whether the Superintendent of Financial Services has jurisdiction under the PBA to order an employer to amend a pension plan or trust agreement.
[3] The second appeal (“the Contribution Holiday Appeal”) raises four issues:
(a) whether the employer was entitled to take a “holiday” from making contributions to the pension plan while the plan was in a surplus position;
(b) under the new 2000 pension scheme, whether the employer was entitled to use surplus funds in the defined benefit aspect of the pension plan to pay its required contributions in the defined contribution aspect of the plan;
(c) whether the employer gave proper notice under the PBA of its proposal in 2000 to convert the plan from a defined benefit plan to a plan that had two funds, one of which would be a defined contribution plan;
(d) whether the Tribunal had jurisdiction to award costs payable out of the pension funds.
B. NATURE OF PROCEEDINGS and STANDARD OF REVIEW
[4] The starting point in both proceedings was a request by some of the appellants (“the Committee”) that the Superintendent of Financial Services (“the Superintendent”) investigate certain alleged irregularities in the handling of the pension plan by Kerry (Canada) Inc (“Kerry”). On the issue of payment of expenses out of pension funds, the Superintendent agreed with the Committee’s position and proposed making an order requiring Kerry to reimburse the fund. Kerry exercised its right to a hearing before the Financial Services Tribunal (“the Tribunal”). The hearing proceeded on October 27, and 28, 2003 and January 7, 8 and 26, 2004. The Tribunal then released its decision on March 4, 2004 (which is now the subject of the Plan Expenses Appeal before this Court).
[5] Other issues investigated by the Superintendent with respect to Kerry taking a contribution holiday from 1995 to 2001 and with respect to the changes made to the Plan by Kerry in 2000 were not resolved in the manner requested by the Committee. The Superintendent refused to order Kerry to reimburse the Plan for the years in which it made no contributions and determined that Kerry was entitled to have its 2000 Plan Amendments registered under the PBA. On these issues, it was the Committee that exercised its right to a hearing before the Tribunal. That hearing proceeded for four days during March and June 2004 and resulted in the Tribunal’s decision of September 1, 2004 (which is the subject of the Contribution Holiday Appeal).
[6] The Tribunal is a part-time, multi-disciplinary adjudicative body established under the Financial Services Commission of Ontario Act, 1997, S.O. 1997. There is a full right of appeal to this Court from decisions of the Tribunal, pursuant to s. 91(1) of the PBA, which provides:
s. 91(1) A party to a proceeding before the Tribunal under section 89 may appeal to the Divisional Court from the decision or order of the Tribunal.
[7] On this appeal, counsel agree that the standard of review for questions of law is that of correctness. In Monsanto v. Superintendent of Financial Services, 2004 SCC 54, [2004] 3 S.C.R. 152, Deschamps J. gave the judgment of a unanimous seven (7) judge court. In deciding the standard of review applicable to the Tribunal’s decision, the court reviewed the principles set out in Pushpanathan v. Canada (Ministry of Citizenship and Immigration), [1998] 1 S.C.R. 982, namely: (a) full statutory rights of appeal and no privative clause (as here): (b) nature of the problem; (c) relative expertise of the Tribunal compared to that of the courts; and (d) purpose of the legislation. The Court held at para. [16] that “a standard of review of correctness should be adopted in this case.”
[8] On the Plan Expenses Appeal, the central issue as to the interpretation of the pension plans and trust agreements and the jurisdictional issue are both questions of law to which the correctness standard is applicable.
[9] On the Contribution Holiday Appeal, the primary issue as to whether the employer was entitled to take a contribution holiday also involves the interpretation of the relevant agreements and pension plans, which are questions of law to which the correctness standard applies. With respect to the other issues, to the extent a question of law or jurisdiction is involved, the Tribunal is required to be correct. However, where the Tribunal is exercising a discretion, the Tribunal is entitled to some deference and this Court will not interfere unless the decision is unreasonable.
C. THE PENSION EXPENSES APPEAL (Appeal No. 178/04)
C1. ISSUE ONE: PAYMENT OF EXPENSES OUT OF PENSION FUNDS
[10] Is the employer, or administrator of the pension plan, entitled to require reasonable administration fees of third parties (e.g. accountants, actuaries and legal fees) to be paid out of the trust fund?
Background Facts
[11] On December 31, 1954, the Canadian Doughnut Company Ltd., (the employer), established a pension plan, for its eligible employees (the 1954 Plan). and an accompanying trust agreement (the 1954 Trust Agreement) between itself and National Trust Company Limited (National Trust). The 1954 Plan required contributions from both the employer and employee/member. The 1954 Plan was administered by a “retirement committee” appointed by the employer, subject to the terms of: (a) the 1954 Plan and (b) the 1954 Trust Agreement, as amended from time to time by the employer. The 1954 Plan was a defined benefit plan (DBP), which means that employees are entitled to a defined benefit upon becoming eligible under the terms of the Plan. This is to be contrasted with a “defined contribution plan”, in which the contribution requirements of the parties are defined and the ultimate return to the employee will depend on the amount accumulated in the fund.
[12] The 1954 Trust Agreement appointed National Trust as Trustee of the 1954 Trust Fund (Trust Fund) and made it responsible for administering the Trust Fund and for managing the Fund’s investments.
[13] The 1954 Trust Agreement was replaced in 1958 by the employer and National Trust. The 1958 Trust Agreement, which was substantially similar to the 1954 Trust, continued the Trust set out in the 1954 Trust. The 1958 Trust, in its recitals, stated that the 1958 Trust Agreement was made part of the Pension Plan.
[14] In 1975, the employer purported to amend the Plan to: (a) give the employer the right to revoke and refund its contributions to the Trust Fund; (b) limit members’ entitlement to the Trust Fund to the value of their accrued pension benefits, and (c) give the employer the discretion to direct certain Plan expenses to be paid from the Trust Fund. (Articles XV (1) and XVII (5) of 1975 Plan Text)
[15] In 1987, the employer made similar Plan expenses amendments which also purported to amend the Plan so as to entitle the employer to claim and receive Plan Surplus while the Plan is ongoing. (Articles 15.04, 16.03 and 18.08 of 1987 Plan Text).
[16] The employer, Canadian Doughnut Company Limited later became DCA Canada Inc. In 1994, DCA’s parent company in the U.S.A., DCA Food Industries Inc. (owning all the shares of DCA Canada Inc.), sold all of its shares to Kerry’s parent company in the U.S.A., Kerry Foods Inc. Kerry U.S. then caused one of its affiliates, Kerry (Canada) Inc., to acquire all the assets and liabilities of DCA Canada Inc. Former employees of DCA Canada Inc. became employees of Kerry (Canada) Inc. as of December 1, 1994 and continued to accrue benefits until 2000 under the Pension Plan.
[17] On June 1, 1997, Canada Trust Company replaced National Trust as Trustee and Administrator of the Trust Fund under the terms of the 1958 Trust Agreement. Subsequently, Canada Trust resigned and Kerry entered a Trust and Custodial Service Agreement, effective January 13, 2000, with CIBC Mellon Trust Company (CIBC Mellon). CIBC Mellon continues to administer the Trust Fund but does not manage the Trust Fund’s investments.
[18] In 2000, Kerry made additional Plan expenses amendments similar to the 1987 Plan Text concerning the use and reversion of surplus assets to the employer and the payment of Plan expenses from the Trust Fund. (Articles 15.04, 16.02, 17.08, 18.09 and 19.04 of 2000 Plan Text) In the 2000 Trust Agreement between the employer and the Trustee (now CIBC Mellon), the employer (now Kerry) purported to expand the scope of permissible Plan expenses allowed to be paid from the Trust Fund under the 1954 and 1958 Trust Agreements. (Article 13 of 2000 Trust Agreement).
Historically, who has paid the Plan’s Expenses?
[19] From the Pension Plan’s inception in 1954 until the end of 1984, all of the Plan’s expenses were paid by the employer, Canadian Doughnut Company Limited, and its successor, DCA Canada Inc. During those thirty (30) years, no expenses were paid out of the Trust Fund.
[20] Commencing in 1985, DCA caused certain Plan expenses to be paid out of the Trust Fund. However, in 1994, DCA reimbursed the Trust Fund for some of the Plan’s expenses paid from the Trust Fund prior to 1994. The amount reimbursed was $233,559.66 for trustee’s fees. (See: Agreed Statement of Facts: [17]-[18], Appeal Book and Compendium: Tab 18: p. 191-192).
[21] Following Kerry’s acquisition of DCA and assumption of the Pension Plan, Kerry commenced paying Plan Expenses out of the Trust Fund. Kerry continues to do so to the present day.
Relevant Statutory Provisions and Terms of the Plans and Agreements
(a) The Pension Benefits Act
[22] The PBA does not authorize the payment of Plan expenses out of the Trust Fund. It is the terms of the Agreements and Plans that govern. The PBA provides:
s. 10. (1) The documents that create and support a pension plan shall set out the following information: …
The contributions or the method of calculating the contributions required by the pension plan.
The mechanism for payment of the cost of administration of the pension plan and pension fund.
(b) The 1954 Pension Plan (DBP)
(i) s. 1 – “Trust Fund” means the Retirement Trust Fund established, under the terms of the Retirement Plan and the undermentioned Trust Agreement, for the accumulation of contributions as herein described and for the payment of certain benefits to Members.
(ii) s. 3 Retirement Trust Fund
All contributions by the Members and the Company shall be paid into a Trust Fund administered by the National Trust Company in accordance with the terms of a Trust Agreement executed between the Company and the Trustee.
All benefits payable under the provisions of the Plan, before retirement, shall be paid from the Trust Fund.
A copy of the Trust Agreement may be examined by any member at any reasonable time at the Head Office of the Company.
(iii) The Future of the Plan
…However, all contributions made by the Company are irrevocable, and, together with all contributions made by Members, may only be used exclusively for the benefit of Members, retired Members, their beneficiaries or estates, and their contingent annuitants. No change or modification will effect any rights which such persons may then have with respect to the terms of payment of, or the amount of, retirement income, which the contributions made by the Member and/or the Company, prior to the effective date of such change or modification, will provide.
If it ever should be necessary to discontinue the Plan, contributions made by the Company cannot be withdrawn, but must remain in the Trust Fund. In such event the Trust Fund shall be distributed among the Members and retired Members and their beneficiaries and estates and contingent annuitants in an equitable manner determined by the Retirement Committee in consultation with the Actuary and the Company, or, if the Company shall have been wound up or have become bankrupt, by the liquidator or Trustee in Bankruptcy of the Company as the case may be. No liability shall attach to the Retirement Committee or any person thereon, or the Company, or the Liquidator, or the Trustee in Bankruptcy in connection with the distribution, if made in all sincerity and good faith.
(c) The 1954 Trust Agreement
(i) PREAMBLE: WHEREAS it is deemed desirable that funds irrevocably contributed for the payment of benefits under the Plan be segregated and held in trust in a Trust Fund (hereinafter referred to as the “Fund”) for the exclusive benefit of such employees or their beneficiaries or personal representatives…
(ii) SECTION 1: The Company hereby establishes with the Trustee a Fund consisting of such sums of money and such property acceptable to the Trustee as shall from time to time be paid or delivered to the Trustee and the earnings and profits thereon. All such money and property, all investments made therewith and proceeds thereof and all earnings and profits thereon, less the payments which at the time of reference shall have been made by the Trustee as authorized herein, shall constitute the Fund hereby created and established. The Fund shall be held by the Trustee in trust and dealt with in accordance with the provisions of this Agreement. No part of the corpus or income of the Fund shall ever revert to the Company or be used for or diverted to purposes other than for the exclusive benefit of such persons or their beneficiaries or personal representatives as from time to time may be designated in the Plan except as therein provided.
(iii) SECTION 5: The expenses incurred by the Trustee in the performance of its duties, including fees for legal services rendered to the Trustee, such compensation to the Trustee as may be agreed upon in writing from time to time between the Company and the Trustee, and all other proper charges and disbursements of the Trustee shall be paid by the Company, but until paid shall constitute a charge upon the Fund. All taxes of any and all kinds whatsoever, including interest and penalties, that may be levied or assessed under existing or future laws upon or in respect of the fund or the income thereof shall be paid from the Fund.
(d) The 1958 Trust Agreement:
(i) PREAMBLE: WHEREAS a copy of the Plan (as amended) is attached hereto as Exhibit “A” for purposes of identification and this Agreement is a part of the said Plan; …
(ii) SECTION 5: The expenses incurred by the Trustee in the performance of its duties, including fees for expert assistants employed by the Trustee with the consent of the Company and fees of legal counsel, and such compensation to the Trustee as may be agreed upon in writing from time to time between the Company and the Trustee, and all other proper charges and disbursements of the Trustee shall be paid by the Company, and until paid shall constitute a charge upon the Fund. All taxes of any and all kinds whatsoever, including interest and penalties, that may be levied or assessed under any existing or future laws upon or in respect of the Fund or the income thereof shall be paid from the Fund.
(iii) SECTION 19: The Trustee shall be entitled to compensation in accordance with the Schedule of Fees on pension and profit-sharing trusts of National Trust Company, Limited now in effect, which compensation may be adjusted from time to time based upon experience hereunder, as and when agreeable to the Company and the Trustee. Compensation payable to any successor trustee shall be agreed to by the Company and such successor trustee at the time of its designation. Such compensation shall constitute a charge upon the Fund unless it shall be paid by the Company. The Company expressly agrees to pay all expenses incurred by it or by any Trustee in the execution of this Trust and to pay all compensation which may become due to any Trustee under the provisions of this Agreement.
(e) Representations by the Employer to the Employees
(i) The 1954 employee booklet (attached to the 1954 Plan) states that if the Plan is discontinued, all money in the Fund must be used only to provide benefits to members of the Plan.
(ii) The 1975 Employee Booklet states, . . .”The Company also pays the cost of administering the Plan.” …
(iii) The 1988 Employee Booklet states,“The Company will contribute all additional amounts that are required to fund the benefits provided by the Plan as well as all expenses associated with the Plan.”
The Decision of the Tribunal
[23] After investigating, the Superintendent, under s. 87 of the PBA, proposed to make an order that Kerry reimburse the pension trust fund for the following amounts, totaling about $850,000.00:
(a) The fees of the Trustee for the performance of its services in respect of the Fund, which were borne by the Fund from 1998;
(b) The fees of an investment manager for its services in respect of the investment of the Fund assets, which were charged to the Fund from 2000;
(c) The fees of accounting firms in respect of their audits of the Fund from 1993;
(d) Miscellaneous expenses relating to the Plan or the fund, including filing fees charged by pension regulatory bodies;
[24] On March 4, 2004, the Tribunal released its Reasons for Decision, the order under appeal, and said:
We order the Superintendent to carry out the First Proposal contained in the Notice of Proposal, i.e. the proposal to order Kerry Canada to reimburse the Fund for all amounts paid out of the Fund after January 1, 1985 for expenses that were not incurred for the exclusive benefit of the members of the Plan, together with all income that would have been earned by the Fund if those expenses had not been paid from the Fund. However, we also order the Superintendent to modify its proposed order by specifying the amounts to be reimbursed, with foregone income, as comprising:
• the consulting and legal fees that the [sic] Kerry Canada has agreed, in the course of this proceeding, to repay to the Fund (as described in (f) and (g) under the heading “Expenses at Issue”); and
• the consulting fees, aggregating $6,455, for advice provided in connection with the possibility of introducing a defined contribution option to the Plan, including the costing of such an option (described under the heading “Expenses for the Exclusive Benefit of the Members of the Plan”).
Finally, we order the Superintendent to refrain from carrying out the Second Proposal contained in the Notice of Proposal, i.e. the proposal to order Kerry Canada to amend the Plan and the terms of the trust to which the Fund is subject so as to limit the expenses that are payable from the Fund to those that are for the exclusive benefit of the members of the Plan.
[25] The result of this decision was to approve of the actions by Kerry in respect of the vast proportion of the plan expenses paid out of the Pension Fund. In coming to this conclusion, the Tribunal held that sections 5 and 19 of the 1958 Trust Agreement evidence a contractual purpose “to ensure that the Trustee is paid, rather than to determine the ultimate allocation responsibility for such payment.” Further, the Tribunal found that the employee booklets should only be taken to describe a “practice” of the employer paying the expenses of the Plan and “cannot create a legal obligation.”
[26] Even though the Tribunal conceded that the amendments permitting payment of plan expenses out of the pension fund would divert assets from the fund, it held this did not adversely affect vested rights because the fund was in a surplus position. The Tribunal further held that it is “implicit in the nature of the usual funding arrangements for a pension plan that the pension fund bear the expenses”, and accordingly, pension plan documents need not “contain specific provisions authorizing the charging to a pension fund of expenses relating to the plan or the fund before such an allocation can be made.”
[27] Finally, the Tribunal held that the references in the Plan and Agreement authorizing payment of expenses that are for the “exclusive benefit” of the Members should not be interpreted strictly. Rather, the Tribunal found that the term “exclusive benefit” of the Members “must logically mean expenses that are for the primary benefit of the members.” (emphasis in the original)
Analysis
[28] Counsel for Kerry submits that the 1958 Plan replaces the 1954 Plan and is more favourable to their client’s position. In our view, it is not necessary to decide that question because Kerry fails even if the 1958 Plan is the operative plan.
[29] The Supreme Court of Canada in Schmidt v. Air Products of Canada (1994), 115 D.L.R. (4th) 631, 654-660, 666 and later the Court of Appeal for Ontario in Markle v. Toronto (City) (2003), 223 D.L.R. (4th) 459, 466-472 have stated that to determine whether an employer can unilaterally make valid amendments to a pension plan to permit the payment of administration expenses from the trust fund involves a three (3) step inquiry:
(a) Is the Plan constituted as a trust?
(b) Has the employer initially reserved a power to revoke the trust? and,
(c) Do the amendments in question constitute a revocation of the trust?
[30] A reading of the pension plan documents in this case leaves no doubt that a trust was created. The Pension Plan and the Trust Agreement cross-reference and adopt each other. Both documents must be read and considered together in order to determine the terms of the trust. It is clear from the documents themselves that the employer did not reserve any power to itself to revoke the trust. On the contrary, the funds were irrevocably deposited for the benefit of the plan members.
[31] In Markle (supra), at pp. 468-469, the Court of Appeal for Ontario stated, “Schmidt has made it clear that the right of an employer to amend a trust pension is strictly limited”. Thus, any contractual right of an employer to amend an ongoing pension plan is “subordinated” to equitable trust law principles which contain “a series of its own rules that apply in addition to, and in precedence over, the law of contract and the rules of construction of contracts”. As Schmidt (supra) stated, very specific express language must be found in the original documents reserving the employer’s power to revoke the trust.
[32] Schmidt (supra) (p. 658-9) and Markle (supra) (p. 471-2) state that an example of an amendment that is an unlawful revocation of the Trust is one that permits the “removal of property or assets from the trust fund” contrary to any of the original stated purposes of the trust agreement.
[33] When an employer has irrevocably parted with control of property placed in a trust, a purported amendment permitting the employer to exercise control over the trust funds through mandatory directions to the trustees to pay expenses out of the funds, will constitute a revocation of the trust. (See: Markle (supra) at p. 471-2 and Schmidt (supra) at p. 658-59).
[34] All contributions to the trust fund constitute trust funds. It is irrelevant whether some of the money in the fund might not be needed to pay defined benefits and, in an actuarial sense, may be surplus. All the money in the fund is impressed with a trust in favour of the employees.
[35] Unless clearly and expressly authorized by the terms of the original trust documents, an employer irrevocably transfers money into the Trust Fund and removal of any of the money is a partial revocation of the trust.
[36] The employer relies upon s. 5 of the Trust Agreement which provides that the fees and expenses of the Trustee “until paid shall constitute a charge on the Fund”. That clause also stipulates that these expenses are to be paid by the employer and it is only upon the employer’s default that a charge upon the pension fund arises. This provision does not assist the employer’s position. The phrase “until paid shall constitute a charge on the Fund” is for the benefit of the Trustee. Because that situation has never arisen, there is no need to determine whether a payment to the Trustee out of the Fund in those circumstances would constitute a breach of the Trust Agreement and amount to a partial revocation of the Trust
[37] Under s. 4 of the 1954 Pension Plan, the Retirement Committee (appointed by the employer) is the administrator and has “the right and power”:
(b) To authorize payment of benefits provided by the Plan.
(c) To make and enforce rules for the efficient administration of the Plan, subject to the provisions of the Text of the Plan and the Trust Agreement.
(d) Employ or appoint actuaries, accountants, counsel etc. for the administration of the Plan.
[38] Although authorized to employ and appoint actuaries, accountants etc., the administrator is not specifically authorized by the Trust Agreement to direct that anyone retained to work on the pension plan be paid out of the Trust Fund. It will be observed that s. 5 of the Agreement specifies that the payment of taxes, interest and penalties “shall be paid from the Fund”. Because there is no reference to administration fees in s. 5, it is a fair and reasonable inference that those costs are not to be paid “from the Fund”.
[39] The purported amendments to the Plan in 1975, 1987 and 2000, as set out above, cannot be valid because each amendment purports to revoke the Trust Agreement in whole or in part. The power to amend the Trust is always subject to the proviso that the proposed amendment cannot divert money from the Trust Fund “other than for the exclusive benefit of such employees” (1958 Trust Agreement: s.11). Investment advice, actuaries etc. provide a benefit to the members. However, that is not the issue. It cannot be for the “exclusive benefit” of the employees to have administration fees paid out of the Fund when the employer is obliged to pay those administration costs under the terms of the Trust Agreement. In this case, the payment of the administration fees out of the Trust Fund provides the primary benefit to the employer by relieving it of a financial burden. It follows that on the wording of the Plan and the Trust Agreement, any purported amendment permitting payment of administration expenses from the Trust Fund is invalid.
[40] In our view, there is no need to consider the Superintendent’s distinction between expenses incurred in 2000 related to expenses incurred to convert the “defined benefit plan” (DBP) to the “defined contribution plan” (DCP) and other administrative expenses because all such expenses are the result of unauthorized purported amendments to the Trust Agreement.
[41] Moreover, it is irrelevant whether the expenses are internal to the administrator or expenses paid by the administrator to a third party or third parties.
[42] Nor is this a case where the employer was required to do what it did because it had exceeded Revenue Canada’s limits on accumulated surplus. Assuming that the “limits problem” existed, it could have been solved without diverting funds to benefit the employer – for example, the employer could have increased employees’ benefits or ordered payment out to beneficiaries.
[43] Moreover, it is irrelevant that the Plan was in a “surplus” position. That is an actuarial notional theory until the Plan is wound up. In Markle (supra), the Court of Appeal for Ontario said, at para 24:
Accordingly, the actuarial surplus in this case constitutes part of the trust fund held for the employees. The fact that the employees’ entitlement to those funds may not crystallize until the Plan is terminated, at which point an actuarial surplus (if there is one) becomes an actual surplus, does not change the fact that the actuarial surplus is part of the trust fund and that as such it may only be dealt with during the life of the trust in a manner that is consistent with the principles of trust law or relevant statutory provisions.
Conclusion as to Plan Expenses Issue
[44] In our view, the Tribunal erred in law by failing to conclude that the Plan expenses amendments and the payment of the Plan expenses from the Trust Fund constitute a partial revocation of the trusts declared in 1954.
(See: Canada: Pension Plan Expenses – What can you charge? – March 30, 2005 – Article by Kathryn Bush © Blake, Cassels & Graydon LLP (originally published by Blakes Bulletin on Pensions – February 2005).
C2. ISSUE TWO: JURISDICTION TO ORDER AMENDMENT
[45] Did the Tribunal err in concluding that the Superintendent does not have the jurisdiction to order Kerry to amend the Plan and the Trusts in respect of the Plan so that the Plan expenses and amendments would be consistent with the original settlement trusts?
Decision of the Tribunal and Positions of the Parties
[46] In its Reasons for Decision, dated March 4, 2004, the Tribunal said, in part:
By the terms of the Second Proposal in the Notice of Proposal, the Superintendent proposes to order Kerry Canada to amend the Plan, and the terms of the trust to which the Fund is subject, in effect to limit, in express terms, the expenses that are payable from the Fund to those that are for the exclusive benefit of the members, which we have interpreted as meaning for the primary benefit of the members.
…we have concluded that the Superintendent has no authority to direct Kerry Canada to amend the Plan to that end.
…We are unable to conclude that the Superintendent has the authority, in the present context, to direct that the Plan be amended to modify the effect of all or any of those amendments by limiting the expenses chargeable to the Fund to those that are for the exclusive benefit, in the sense of the primary benefit, of the members.
As the Superintendent does not have this authority, the Tribunal likewise does not have the authority on a Request for Hearing under section 89 of the Act, which is what gave rise to this proceeding. Under that section, the Tribunal may only direct the Superintendent to carry out or refrain from carrying out a proposal “and to take such action as the Tribunal considers the Superintendent ought to take in accordance with [the] Act and the regulations” (subsection (9)). ….Before ordering the Superintendent to do something, the Tribunal must be satisfied that the Superintendent has the authority, by the terms of the Act or the regulations under the Act, to do what the Tribunal would order him to do.
…Finally, we order the Superintendent to refrain from carrying out the Second Proposal contained in the Notice of Proposal, i.e. the proposal to order Kerry Canada to amend the Plan and the terms of the trust to which the Fund is subject so as to limit the expenses that are payable from the Fund to those that are for the exclusive benefit of the members of the Plan.
[47] Counsel for the Appellants and counsel for the Superintendent submit that the Superintendent and the Tribunal had the necessary jurisdiction to order Kerry to amend the Plan and the Trusts. Counsel for Kerry submits that neither the Superintendent nor the Tribunal had the jurisdiction to order an amendment to the Plan or to the Trust.
Relevant Statutory Provisions
[48] Section 87(1) of the PBA provides:
- (1) The Superintendent, in the circumstances mentioned in subsection (2) and subject to section 89 (hearing and appeal), by a written order may require an administrator or any other person to take or to refrain from taking any action in respect of a pension plan or a pension fund.
(2) The Superintendent may make an order under this section if the Superintendent is of the opinion, upon reasonable and probable grounds,
(a) that the pension plan or pension fund is not being administered in accordance with this act, the regulations or the pension plan;
(b) that the pension plan does not comply with this Act and the regulations; or ….
(3) In an order under this section, the Superintendent may specify the time or times when or the period or periods of time within which the person to whom the order is directed must comply with the order.
(4) An order under this section is not effective unless the reasons for the order are set out in the order.
[49] The Tribunal acknowledged that it could order an amendment to the Plan only if the Superintendent could have made the same requested amendment.
[50] Counsel for Kerry points out that the jurisdiction of the Superintendent under s. 18 of the PBA is confined to “refusing to register a pension plan” or “to revoke the registration of a pension plan”. The section does not speak of any authority in the Superintendent to order an amendment of a pension plan.
[51] Under the Constitution Act, 1867, only a section 96 judge (a superior court judge) has the supervisory jurisdiction at common law and equity in relation to trusts and the jurisdiction to order the rectification of a contract. This common law jurisdiction has been preserved and codified in the Variation of Trusts Act, R.S.O. 1990, c. V. 1, s. 1. (1).
[52] The Legislature of Ontario does not have jurisdiction to usurp the historical function of a s. 96 judge. (See: Reference Re Residential Tenancy Act 1979 (Ontario) (1981), 123 D.L.R. (3d) 554 (S.C.C.). It is presumed that statutes are enacted in compliance with all limitations on the jurisdiction of the enacting body, including limits imposed by constitutional law. Applying the presumption of constitutionality, subsection 87(1) [of PBA] must be read as not authorizing the Tribunal to order the amendment of either the Trust Agreement or the Plan as such authorization would usurp the historical functions of a section 96 court.
Conclusion as to Jurisdiction to Order Amendment
[53] In our view, neither the Superintendent nor the Tribunal had the jurisdiction to require Kerry to amend the Plan and/or the Trust of the Plan so that all amendments that deal with payment of Plan expenses would be consistent with the original settlement of the trust. The Tribunal’s decision in that regard was correct.
D. THE CONTRIBUTION HOLIDAY APPEAL
D1. ISSUE ONE: CONTRIBUTION HOLIDAY
[54] Do the terms of the Plan and applicable Trust Agreement permit the Company to take contribution holidays since 1985 and, if not, should the Superintendent be directed to order the Company to pay into the Fund all employer contributions that it did not make by virtue of taking contribution holidays, together with an amount equal to the income that would have been earned thereon in the Fund (the “Contribution Holiday Issue”)?
Relevant Statutory Provisions and Terms of the Plans and Agreements
[55] Section 7(3) of Ont. Reg. 909, R.R.O. 1990, as amended, states:
- (3) In any year for which no special payments are required to be made for a pension plan under section 5, an actuarial gain may be applied to reduce any employer contributions for normal costs.
[56] The 1954 Agreement provides:
- CONTRIBUTIONS
(a) Each member shall contribute 5% of his earnings by payroll deduction, toward the cost of providing his Future Service retirement income.
(b) Contributions by the Company
In addition to contributing the full cost of providing the Past Service retirement incomes referred to in Section 13(a) of this Plan, the Company shall also contribute, in respect of Future Service benefits, such amounts as will provide, when added to the Member’s own required contributions, the Future Service retirement incomes referred to in Section 13(b) of the Plan.
Analysis
[57] Again, it is not necessary to decide Kerry’s argument that the 1958 Agreement completely replaced the 1954 Agreement. The Appellants’ (employees’) best and highest position is found in s. 14(b) of the 1954 Plan. Even applying that provision, instead of the 1958 Plan, we do not agree with the Appellants’ position.
[58] In our view, the Tribunal was correct when it followed the decision of the Supreme Court of Canada in Schmidt v. Air Products of Canada (1994), 115 D.L.R. (4th) 631 where the employer’s contribution obligation was virtually the same as the 1954 Plan text. In Schmidt, the Court said:
p. 665:
As noted earlier, the trust property usually consists of all the moneys contributed to the pension fund. To permit a contribution holiday does not reduce the corpus of the fund nor does it amount to applying the moneys contained in it to something other than for the exclusive benefit of the employees. The entitlement of the trust beneficiaries is not affected by a contribution holiday. That entitlement is to receive the defined benefits provided in the pension plan from the trust and, depending upon the terms of the trust, to receive a share of any surplus remaining upon termination of the plan.
p. 665:
While a plan which takes the form of a trust is in operation, the surplus is an actuarial surplus. Neither the employer nor the employees have a specific interest in this amount, since it only exists on paper; although the employee beneficiaries have an equitable interest in the total assets of the fund while it is in existence. When the plan is terminated, the actuarial surplus becomes an actual surplus and vests in the employee beneficiaries. The distinction between actual and actuarial surplus means that there is no inconsistency between the entitlement of the employer to contribution holidays and the disentitlement of the employer to recovery of the surplus on termination. The former relies on actuarial surplus, the latter on actual surplus.
p. 654:
It is suggested that if employers are not able to retrieve surpluses, they will be tempted to fund existing plans less generously. I cannot agree. First, unless the terms of the plan specifically preclude it, an employer is entitled to take a contribution holiday.
p. 667:
Where the plan is silent on the issue, the right to take a contribution holiday is not objectionable so long as actuaries continue to accept the application of existing surplus to current service costs as standard practice. These principles apply whether or not the pension fund is subject to a trust. Because no money is withdrawn from the fund by the employer, the taking of a contribution holiday represents neither an encroachment upon the trust nor a reduction of accrued benefits.
p. 643:
Contribution to a defined benefit plan is made each year on the basis of an actuary’s estimate of the amount which must be presently invested in order to provide the stipulated benefits at the time the pension is paid out. The actuary’s estimate of the present value of future benefits to members of the plan is known as the “current service cost”. The obvious difficulties involved in predicting factors such as inflation rates, the investment returns and the future employee levels of the company mean that the actuary’s task is difficult and to a certain extent speculative. The assumptions made by actuaries in respect of these and other factors will have a significant impact upon the determination of current service costs and the calculation of present levels of fund surplus or liability.
[59] As Schmidt holds, there is nothing inherently offensive with taking a contribution holiday in a defined benefit plan (DBP). It is not a breach of trust and does not constitute misuse of trust funds because the trust only attaches to money in the fund after it has been paid into the fund.
[60] It is fallacious to suggest that trust obligations can be imposed, where the obligations relate to the requirement to contribute to the Fund, before the employer pays the money into the Fund. Trust obligations can only be imposed after such assets are transferred to the trust and become part of the corpus of the trust. The obligation to contribute/pay-in cannot be said to be impressed with a trust. The mere expectancy of receiving something is not property that can be the subject of a trust.
[61] Contribution holidays are permitted unless prohibited specifically or by the terms of the plan (Schmidt: p. 654). There is nothing in s. 14(b) of the 1954 Plan (supra) that prohibits or would be offended by contribution holidays. The 1958 Plan is silent on the topic.
[62] Where a plan is silent on contribution holidays, they are permissible so long as they are taken according to standard actuarial practice (Schmidt: p. 664 and p. 667). Where actuarial discretion is excluded, such that some payment is required to be paid each year by the employer, then, in those circumstances, the employer must keep funding even where it is not necessary to do so in order to ensure that there are sufficient funds in the plan to meet the plan’s liabilities.
[63] Under s. 14(b) of the 1954 Plan, the employer’s contribution is whatever sum is necessary, when added to the employees’ contributions, to provide for the benefits provided by the Plan. Under s. 4(c) of the 1954 Plan Text, the administrator is empowered to retain actuaries and permitted to rely on reports of actuaries.
[64] The text of the 1954 Plan neither prohibits contribution holidays nor does it require specific payments by the employer. At times, it may be that the only money being paid into the Fund comes from employees under s. 14(a) of the 1954 Plan. That is not unfair because it is a DBP – no matter what happens, the employer is obligated to pay the full benefits even if the Trust Fund does not cover the defined benefits.
Conclusion as to Contribution Holiday
[65] In our view, the decision of the Supreme Court of Canada in Schmidt is applicable and definitive in this case. In our view, the following cases to which we were referred by counsel for the Appellants, in attempting to persuade us to the contrary, are pre-Schmidt, distinguishable on their facts or not binding. Those cases, inter alia, are:
Hockin v. Bank of British Columbia (1995), 123 D.L.R. (4th) 538 (B.C.C.A.), leave to appeal to S.C.C. refused.
C.U.P.E. Local 1000 v. Ontario Hydro (1989), 58 D.L.R. (4th) 552 (Ont. C.A.).
Trent University Faculty Association v. Trent University (1997), 150 D.L.R. (4th) 1 (Ont. C.A.).
Maurer v. McMaster University (1995), 23 O.R. (3d) 577 (Ont. C.A.)
Chateauneuf v. T.S.C.O. of Canada Ltd. (1995), 124 D.L.R. (4th) 308 (Que. C.A.)
[66] In our view, the Tribunal was correct in holding that the employer was entitled to take contribution holidays regarding the defined contribution plan (DBP) as long as the Trust Fund is sufficient, as confirmed and set out in an actuarial report, to pay the benefits provided in the Plan. This, according to the record, has been the situation since January 1, 1985.
D2. ISSUE TWO: CROSS-SUBSIDIZATION FOR EMPLOYER CONTRIBUTIONS
[67] The 2000 Plan text created a two-part plan: Part I is a “defined benefit plan” (DBP) as before and the newly created Part 2 is a “defined contribution plan” (DCP). Is Kerry permitted to “cross-subsidize” or fund the DCP side by way of contribution holidays from the DBP side?
Background Facts
[68] The background facts are set out by the Tribunal at p. 3 of its decision as follows:
On or about November 22, 1999, notice was given by the Company to its employees advising them that they were being given a one-time opportunity to convert their defined benefit entitlements, as of January 1, 2000, to a “new plan” established on a defined contribution basis, and requiring that any exercise of that option should be made by December 15, 1999, any such exercise to have the effect of eliminating any pension entitlements “under the current defined benefit plan”. The 2000 Plan provides, among other things, for the addition of a defined contribution component to the Plan. Those participating in that component (designated “Part 2” under the 2000 Plan), funded by an insurance policy, include those employees who exercised their option to convert to a defined contribution arrangement and new employees hired after January 1, 2000 (collectively the “Part 2 members”). Those who did not exercise the conversion option remain in the defined benefit component of the Plan (designated “Part 1” under the 2000 Plan). As “Part 1 members”, their pension entitlements continue to be provided from the Fund, now reduced by the commuted values, as at December 31, 1999, of the accrued benefits of the employees who exercised their option to become Part 2 members.
The Tribunal Decision
[69] The Tribunal held that as currently proposed under the 2000 Plan, the employer was not entitled to use trust monies from the previously established defined benefit plan (Part 1) to fund its obligations to make defined yearly contributions under the new defined contribution plan (Part 2). The Tribunal held, at p. 10:
The Committee [the Appellants] argued that the 2000 Plan should not be registered because of certain inconsistencies with the 1954 and 1958 Trust Agreements, which render the 2000 Plan void because the trust established by those Agreements takes primacy over the Plan text. The Committee claimed that the 2000 Plan is inconsistent with the Trust Agreements in that it permits the employer, in sections 18.08 and 25.02, to take a holiday from its contribution obligation on account of Part 2 members (those who participate in the defined contribution component of the Plan) by resort to the surplus in the Fund, which is held for the benefit of the Part 1 members (those who participate in the defined benefit component of the Plan). We agree that this is indeed the case as these provisions allow the Company to use or divert some part of the Fund, i.e. the surplus, “to purposes other than for the exclusive benefit of” the beneficiaries of the trust in respect of the Fund who, by virtue of the 2000 Plan, are now the Part 1 members. Any holiday taken by the Company in respect of Part 2 contributions in this fashion can only be realized by actually moving money out of the Fund and transferring it to the insurer that is the funding agency for Part 2, for credit to the individual accounts of the Part 2 members. This action is inconsistent with section 1 of the 1954 Trust Agreement, recited above under the heading “FACTS” (section 1 of the 1958 Trust Agreement is in similar terms).
[70] However, the Tribunal went on to suggest to Kerry that this problem could be avoided if Kerry amended its Plan, retroactive to January 1, 2000 to designate Part 2 members as “beneficiaries of the trust in respect of the Fund in Part 1”. The Tribunal held that if this were done, Kerry could use any surplus assets in the DBP (created in 1954) to fund its obligations under the DCP (created in 2000).
Analysis
[71] We are of the view that the Tribunal was correct in deciding that the proposed 2000 Plan would violate the 1954 Trust Agreement because it would partially revoke the Trust declared in 1954, that is, the Fund would be used for purposes other than for the exclusive benefit of Part 1 members. However, the Tribunal erred in respect of its proposed “remedy” involving designating the Plan 2 Members as beneficiaries of Plan 1. To be correct in law, the Tribunal should have refused to register the 2000 Plan text and to do so without conditions.
[72] In our view, the Tribunal erred when it held that “we don’t have two funds in relation to a single pension plan. Rather, we have one pension fund” (p. 11). The 2000 Plan text, no matter what language is employed, clearly creates two (2) funds. The Appellants, who elected to stay in Plan 1, as they were entitled to do, are or have contributed to the DBP and have a beneficial interest in all of the funds in the Plan. The DCP, Part 2, fund is completely separate and funded separately. The Part 2 DCP employees have no connection to the Part 1 DBP plan and cannot legitimately be given a beneficial interest in the fund on the DBP side. Here, there are in law, two (2) pension plans, two (2) pension funds and two (2) classes of members.
[73] The “remedy” proposed by the Tribunal conflicts with the principles set out in Aegon Canada Inc. v. ING Canada Inc. (2003) 34 C.C.P.B. 1 (Ont. Sup. Ct. per Lane J.) at para. [43] and affirmed by the Ont. C.A.: (2003) 38 C.C.P.B. 1 and in several other appellate decisions, which hold that an employer, in similar circumstances, may not amend a pension plan to permit an employer to “cross-subsidize” its contribution obligations toward employees participating in one part of a single registered pension plan by using the assets of a trust fund held exclusively for members participating under another part of the same plan. The remedy proposed by the Tribunal would merge, co-mingle and expose the liabilities and assets of Part 2 members to and with the trust assets of Part 1 members, who are the exclusive beneficiaries of the Trust Fund.
[74] The proposed “remedy” would also conflict with several decisions which recognize that a pension plan can, in form, be a single plan for registration purposes at the Financial Services Commission of Ontario (FSCO) but, in substance, be considered two (2) or more distinct plans that provide distinct rights for distinct classes of employees.
Conclusion as to Cross-Subsidization
[75] In our view, the Tribunal was correct in finding that surplus assets in the defined benefit plan could not be used by Kerry to fund its contribution obligations to the Plan 2 members. Since the proposed 2000 Plan purported to authorize such cross-subsidization the Tribunal ought to have denied registration of the 2000 Plan. The Tribunal erred in law in suggesting the “remedy” it did and erred in law in finding that the employer could validly amend the 1954 Agreement to designate Plan 2 members as beneficiaries of the Plan 1 (or DBP) trust fund.
D3. ISSUE THREE: NOTICE OF 2000 AMENDMENTS
Relevant Statutory Provisions
[76] Section 26 of the PBA provides:
s. 26 (1) If the administrator of a pension plan applies for registration of an amendment to the pension plan that would result in a reduction of pension benefits accruing subsequent to the effective date of the amendment or that would otherwise adversely affect the rights or obligations of a member or former member or of any other person entitled to payment from the pension fund, the Superintendent shall require the administrator to transmit to such persons as the Superintendent may specify a written notice containing an explanation of the amendment and inviting comments to be submitted to the administrator and the Superintendent, and the administrator shall provide to the Superintendent a copy of the notice and shall certify to the Superintendent the date on which the last such notice was transmitted.
(2) If the Superintendent has required the administrator to transmit notices under subsection (1), the Superintendent shall not register an amendment mentioned in that subsection before the expiration of forty-five days after the date certified to the Superintendent under that subsection, but after the expiration of the forty-five day period the Superintendent may register the amendment with such changes as are requested in writing by the administrator.
(3) Within the prescribed period of time after an amendment to a pension plan is registered, the administrator shall transmit notice and a written explanation of the amendment to each member, former member or other person entitled to payment from the pension fund who is affected by the amendment.
(4) The Superintendent need not require the transmittal of notices under subsection (1) or by order may dispense with the notice required by subsection (3), or both,
(a) if the Superintendent is of the opinion that the amendment is of a technical nature or will not substantially affect the pension benefits, rights or obligations of a member or former member or will not adversely affect any person entitled to payments from the pension fund;
[77] Section 22 of the PBA reads:
- (1) The administrator of a pension plan shall exercise the care, diligence and skill in the administration and investment of the pension fund that a person of ordinary prudence would exercise in dealing with the property of another person.
(2) The administrator of a pension plan shall use in the administration of the pension plan and in the administration and investment of the pension fund all relevant knowledge and skill that the administrator possesses or, by reason of the administrator’s profession, business or calling, ought to possess.
Background Facts
[78] On or about November 22, 1999, notice was given by the Company to its employees advising them that they were being given a one-time opportunity to convert their defined benefit entitlements, as of January 1, 2000, to a “new plan” established on a defined contribution basis, and requiring that any exercise of that option should be made by December 15, 1999, any such exercise to have the effect of eliminating any pension entitlements “under the current defined benefit plan”: Reasons of the Tribunal at p. 3. Notice was not given to former employees of the company who were beneficiaries under the pre-existing pension plan.
[79] Although s. 26(1) of the PBA requires a notice to invite comments to be submitted to the administrator or the Superintendent, the notice sent by Kerry in this case did not include such an invitation.
[80] The Tribunal heard evidence as to the information and access to advice, and the time for considering that advice, that were afforded by the Company to its employees. The Tribunal held (at pp.11-12):
There appear to have been some shortcomings in the disclosure process, including a misdescription of the change of the pension arrangements that were subsequently to take place as the creation of a new defined contribution plan when a defined contribution component of the existing Plan was actually established. These shortcomings raise questions as to whether employees were adequately informed of the material factors that might affect their conversion decisions by the time they had to make that decision.
[81] We agree with the Tribunal’s conclusion that the notice sent by Kerry did not accurately inform employees as to the changes in the plan. Employees would not be in a position to make an informed decision as to their options based on the disclosure provided.
Decision of the Tribunal
[82] The Tribunal found that, notwithstanding the deficiencies in the notice, “we do not think that the alleged deficiencies would make the 2000 Plan void or inconsistent with the Act or the General Regulation.”
[83] Further, the Tribunal held at pp. 11-12:
Neither the Act nor the General Regulation establishes a process for giving notice to pension plan members of a conversion option. While the Act does require, in s. 26(1), that notice be given of an adverse amendment to a pension plan that reduces pension benefits prospectively, a conversion from a defined benefit pension arrangement to a defined contribution arrangement does not necessarily have that effect. Rather, it essentially changes the risks associated with pension benefits. In any event, even if notice of an adverse amendment was required in respect of the 2000 Plan, under s. 26(1) of the Act, the Superintendent would have been entitled, under s. 26(4), to refrain from requiring the Company to give such a notice if he was of the opinion that the 2000 Plan would not substantially affect pension benefits, rights or obligations of any members. The Superintendent has taken the position, in responding to the requests made to him by the Company (in an attachment to a letter dated April 22, 2002 from the Deputy Superintendent to the chair of the Committee) and in this proceeding that the employees potentially affected by the 2000 Plan had adequate notice. In any case, the Act does not say that a failure to give notice of an adverse amendment, when required under the Act, results in the amendment being void or otherwise non-registerable.
For all of these reasons, the deficiencies in the conversion process would not, in themselves, constitute sufficient grounds for the Superintendent to refuse to register the 2000 Plan.
Analysis
[84] To a large extent, the determination by the Tribunal that notice to the employees and former employees was either adequate, or not necessary, was influenced by the Tribunal’s view that there was nothing wrong with the employer’s plan to use surplus assets from Plan 1 to fund its contributions to Plan 2. We have found above that this cross-subsidization between the plans is not permissible. Had the Tribunal decided that point correctly, it would no doubt also have concluded that the proposed amendments were adverse to the interests of the Plan 1 members.
[85] Generally, however, we agree with the position taken by the appellants that a conversion from a defined benefit plan to a defined contribution is significant and requires notice to all affected employees and beneficiaries under s. 26(1): See FSCO Policy C200-101, “Conversion of a Plan from Defined Benefit to Defined Contribution” (June 1, 2004); Letter dated April 22, 2002 from FSCO to William Fitz, Chair of the DCA Employees Pension Committee, Appeal Book and Compendium Tab 17.
[86] Further, we agree with the appellant’s position that Kerry, as administrator of the Plan, had a duty under s. 22 of the PBA to comply with the notice requirements under s. 26(1) and to fairly disclose and describe the proposed changes to all affected parties (including former employees who were beneficiaries under the original pension plan)
[87] Finally, with respect to remedy, the Tribunal stated that a failure to give notice of an adverse amendment, even when required under the Act, “does not make the amendment void or non-registerable”. In our view, the Tribunal erred in law when it concluded that, on the facts of this case, no statutory remedy exists. The administrator’s failure to give proper notice under s. 22 and s. 26 of the PBA shows that the administrator failed to administrate the Plan in accordance with s. 19 of the PBA. Section 18 and s. 87 of the PBA give the Superintendent authority: (i) to refuse registration of an amendment, (ii) revoke registration of an amendment of a pension plan or (iii) order the employer or administrator to take any other remedial action if the administrator is not complying with the PBA. In our view, the Tribunal and the Superintendent erred in failing to refuse registration of the 2000 Plan because of the administrator’s failure to fulfill the Notice requirements of s. 22 and s. 26 of the PBA.
Conclusion as to Notice Requirement
[88] Kerry, if it wishes to put forward a plan which complies with the PBA and the law of trusts, will have to go back to the drawing board. When it has a plan that fits those pre-requisites, the administrator is to send out new notices that comply with the PBA.
D4. ISSUE FOUR: COSTS BEFORE THE TRIBUNAL
Background
[89] After the Tribunal released its reasons on September 1, 2004, the Appellants notified the Registrar of the Tribunal that they would seek an order against the Company to pay the costs of the Appellants before the Tribunal and for those costs to be paid out of the pension fund or, in the alternative, that the costs be paid by Kerry.
[90] Kerry sought an order that the Tribunal order that the Appellants pay Kerry’s costs incurred before the Tribunal.
[91] Written submissions were filed by the parties and the Tribunal heard oral submissions on December 9, 2004.
[92] The Tribunal, on December 24, 2004, released a majority and a minority decision regarding the costs issue.
[93] The majority of the Tribunal held that:
• The Tribunal derived its authority to “order that a party to a proceeding before it pay the costs of another party as the Tribunal’s costs of the proceedings” from s. 24(1) of the Financial Services Commission Ontario Act, 1997, S.O. 1997, c. 28 (FSCO Act).
• That because s. 24(1) of the FSCO Act pre-dates s. 17.1 of the Statutory Powers Procedure Act, R.S.O. 1990, c. S.22, as amended (SPPA), the restrictions and limitations of s. 17.1(2) and (5) of the SPPA do not apply to s. 24(1) of the FSCO Act.
• That the authority to award costs is to make an order that “a party” pay costs. A trust fund is not “a party”. The Tribunal, a creature of statute with no inherent powers, has neither statutory authority nor inherent authority to order costs payable out of the pension trust fund. The minority, the Chair of the Panel, held that the Tribunal had such authority.
• The Tribunal was unanimous in holding that, in all the circumstances of this case, there should be no award as to costs.
Conclusions as to Costs Before the Tribunal
[94] In our view, the majority of the Tribunal was correct in law when it held that it had no jurisdiction to order costs be paid to the Appellants out of the Trust Fund because the Tribunal, a statutory administrative tribunal, is not clothed with such statutory power by the Legislature.
E. OVERALL CONCLUSIONS AND RESULTS OF THE APPEALS
The Pension Expenses Appeal: Appeal No. 178/04
[95] The employer was not permitted to pay costs of administering the plan out of the trust fund. Amendments purporting to authorize the employer to do so constitute a revocation of the trust and are invalid. The Tribunal erred in law by finding to the contrary and its decision in that regard cannot stand. However, the Tribunal was correct in concluding that the Superintendent had no jurisdiction to order Kerry to amend the Plan.
[96] In the result, the appeal is allowed and the Decision and Order of the Tribunal, dated March 4, 2004, is set aside and in its place there will be an order that the Superintendent be directed to carry out the first proposal, dated April 22, 2002, but amended such that Kerry be required to reimburse the Fund for all of the amounts paid out of the Fund after January 1, 1985 for expenses incurred to administer or operate the Plan and Fund (other than taxes, including interest and penalties levied against the Fund or the income thereof) and for all income that would have been earned by the Fund if those expenses had not been paid from the Fund. The appeal is otherwise dismissed.
[97] The Tribunal’s order of “no order as to costs” was a reasonable exercise of the Tribunal’s discretion and would have been accorded our deference if we had come to the same conclusion as the Tribunal on the merits.
The Contribution Holiday Appeal: Appeal No. 520/04
[98] The Appellants’ appeal from the order of the Tribunal, dated September 1, 2004 is allowed, the Tribunal’s order is set aside and the Superintendent is directed to refuse registration of the 2000 Plan text.
[99] The majority decision that there is no jurisdiction to order costs payable out of the pension fund is correct in law. The Tribunal, in its discretion, on December 24, 2004, refused costs. However, we have allowed Appeal No. 520/04 and we have been not been shown any reason why the Appellants should not have their costs of the hearings before the Tribunal which resulted in the September 1, 2004 and December 24, 2004 decisions. If counsel are unable to agree on costs regarding the Tribunal decisions that gave rise to Appeal No. 520/04, then the same schedule is to be followed as set out in para. [100].
Costs of the Appeals in this Court
[100] If counsel are unable to agree as to costs, counsel for the Appellants shall, within fifteen (15) days of the release of these reasons, file with the Registrar brief written submissions covering the costs of both appeals. Within fifteen (15) days thereafter, counsel for Kerry may file brief written submissions. Within five (5) days thereafter, if so advised, counsel for the Appellants may file brief written submissions in reply. The Court will, thereafter, fix the costs of the appeals.
[101] No costs for or against the Superintendent.
O’Driscoll J.
Jarvis J.
Molloy J.
Released:
COURT FILE NOS.: 178/04 and 520/04
DATE: 20060315
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
o’driscoll, jarvis and molloy jj.
B E T W E E N:
ELAINE NOLAN, GEORGE PHILLIPS, ELISAETH RUCCIA, KENNETH R. FULLER, PAUL CARTER, R.A. VARNEY and BILL FITZ, being members of the DCA EMPLOYEES PENSION COMMITTEE representing certain of the members and former member of the Pension Plan for the Employees of Kerry (Canada) Inc.
Appellants (Applicants)
- and -
SUPERINTENDENT OF FINANCIAL SERVICES
Respondent (Respondent)
- and -
KERRY (CANADA) INC.
Respondents (Respondents)
REASONS FOR JUDGMENT
THE COURT
Released: March 15, 2006