COURT OF APPEAL FOR ONTARIO

DATE: 20001005

DOCKET: C33148

RE: THE POLICE RETIREES OF ONTARIO INCORPORATED (Plaintiff/Appellant) v. THE ONTARIO MUNICIPAL EMPLOYEES’ RETIREMENT BOARD, THE WATERLOO REGIONAL POLICE SERVICES BOARD, THE WATERLOO REGIONAL POLICE ASSOCIATION and THE WATERLOO REGIONAL POLICE SENIOR OFFICERS’ ASSOCIATION (Defendants/Respondents)

BEFORE: FINLAYSON, DOHERTY and BORINS JJ.A.

COUNSEL: Joyce Harris, for the appellant

Christopher G. Riggs, for the respondent, The Waterloo Regional Police Services Board

John M. Roland, Q.C. and David A. Stamp, for the respondent, The Ontario Municipal Employees’ Retirement Board

Martin J. Doane, for the respondents, The Waterloo Regional Police Association and The Waterloo Regional Police Senior Officers’ Association

HEARD: September 20, 2000

On appeal from the order of Justice Gloria J. Epstein dated October 6, 1999.

E N D O R S E M E N T

[1] The appellant, Police Retirees of Ontario Incorporated, is a non-profit corporation whose membership is restricted to retired uniform and civilian members of all municipal and provincial and certain federal police forces. It appeals the decision of the Honourable Madam Justice Epstein on a Rule 22 motion.

Facts

[2] The facts are set out in an agreed statement of fact and are recited by the motions judge at paras. 4-53 of her decision, which is reported at (1999), 22 C.C.P.B. 49. The question of law before her was whether certain retired police officers represented by the appellant were entitled to an interest in approximately $6 million of pension funds (“excess funds”). The motions judge commented that this is not a “garden variety” pension surplus case. The parties before her were disputing whether the excess funds constitute a pension surplus at all and whether or not an agreement creating supplementary retirement benefits created a separate pension plan, which was wound up for purposes of the governing legislation. A further complication was that the pension scenario at issue is subject to both the Pension Benefits Act, R.S.O. 1990, c. P. 8 (“PBA”) and the Ontario Municipal Employees Retirement System Act, R.S.O. 1990, c. O. 29 (“OMERS Act”) and various regulations enacted pursuant to these statutes.

[3] The excess funds were deposited between 1976 and 1991 in the Ontario Municipal Retirement System (“OMERS”) by the Waterloo Regional Police Services Board (“Police Board”). In December 1973, the Police Board entered into a Supplementary Benefits Agreement (“Supplementary Agreement”) with OMERS to provide a permanent partial disability supplementary benefit to police officers and civilian employees of the Police Board. The Supplementary Agreement was amended by an agreement dated January 1977, made effective retroactively to January 1, 1976, to provide for additional supplementary early retirement benefits (“SERB”) to enable police officers who were within ten years of normal retirement age to retire on a full pension after 30 years of service.

[4] The SERB were initially paid for by contributions from both the Police Board and the police officers. However, Ontario Regulation 70/83 amended the contribution scheme so that employees no longer contributed under the Supplementary Agreement and, from 1983 onwards, the Police Board made all contributions. Contributions that had been made by police officers prior to 1983 were, on an optional basis, transferred to the RRSPs of the police officers who made the contributions or used to provide additional retirement benefits for them. Ontario Regulation 70/83 also authorized the OMERS Board to determine the form and content of a supplementary agreement. Pursuant to the regulation, the Supplementary Agreement was amended in 1983 to include a provision (clause 7) that provided as follows:

Subject to the provisions of applicable federal and provincial rules and regulations, upon determination at any date by actuarial valuation that the value of the assets of the Plan is in excess of the amount then required to satisfy, or to provide for, all Plan liabilities with respect to the covered members and their beneficiaries accrued to such date, such excess may be used to reduce the Employer portion of Plan contributions otherwise required under the Plan or may be used or applied in such other manner as the [OMERS] Board and the Employer shall mutually agree.

[5] The excess funds arose in December 1991 when Ontario Regulation 775/91 was enacted under the OMERS Act. The regulation made the SERB part of the basic pension benefits being provided by OMERS. As a result, the Police Board was no longer required to make contributions under the Supplementary Agreement for the SERB, since the cost of providing the SERB for any subsequent retirements was now assumed by the basic plan. Contributions by the Police Board to fund the SERB and which had not yet been used to provide SERB benefits to pensioners who had retired prior to the end of 1991 were no longer required to provide this benefit and thus became the excess funds.

[6] For members who retired with the SERB before the legislative change in December 1991, their benefits are funded by the employer contributions made between January 1, 1976 and December 31, 1991 and those contributions were not included in the excess funds. Up until the legislative change, when a member retired entitled to a SERB, sufficient funds collected under the Supplementary Agreement were notionally transferred to the basic plan to pay for the SERB benefit. This notional transfer had the effect of placing on the basic plan the actuarial risk that the benefits paid to members might exceed the amount notionally transferred.

[7] In 1992, the OMERS Board gave the Police Board five options from which it could elect one or more uses for the excess funds, provided it had the consent of the Waterloo Regional Police Association and the Waterloo Regional Police Senior Officers’ Association (collectively “Associations”).[^1] The Associations were the bargaining agents that originally negotiated the SERB. Retirees may be members of the Associations, but they are not permitted to vote or hold office and are not considered to be within the Associations’ mandate of representation in connection with financial and collective bargaining matters. In December 1993, the Police Board, with the Associations’ consent, elected to leave $2 million of the excess funds in the OMERS fund to be offset against supplementary benefits yet to be introduced and to use the balance of the excess funds to offset the employer basic plan contributions.

[8] The Waterloo Regional Police Retirees Association learned of the agreement over the use of the excess funds in the summer of 1995. It commenced an action claiming an interest in these funds on August 26, 1996. By order dated November 9, 1998 under Rule 10 of the Rules of Civil Procedure, Kiteley J. appointed the appellant as the representative of the retirees of the Waterloo Regional Police Force who were employed between January 1, 1976 and December 31, 1991 for the purposes of the Rule 22 motion.

[9] Counsel for the appellant advanced five alternative grounds before the motions judge for finding that the retirees have an interest in the excess funds:

a) the excess funds constitute a surplus out of a pension plan that is being wound up in whole or in part; the PBA forbids the use of such funds for any purpose other than to benefit active and retired members of the plan;

b) the retirees have an interest in the excess funds because the funds are a surplus that cannot be dealt with without the prior consent of the Pension Commission on notification to the retirees;

c) the excess funds are trust monies for the benefit of the retirees;

d) the retirees have an interest in the excess funds because the respondents stand in a fiduciary relationship to them and must disgorge any profits taken at their expense; and

e) the retirees have an entitlement to the excess funds under principles of unjust enrichment.

[10] The motions judge’s succinct analysis will not be repeated here. She concluded that none of the arguments in a), b) or c) could succeed unless she determined that the Supplementary Agreement created a separate pension plan. Additionally, so far as arguments d) and e) were concerned, they could not succeed unless the retirees established an entitlement to the surplus funds under a), b) or c). She concluded that the Supplementary Agreement did not create a separate pension plan but was “part and parcel of the main pension plan.” This conclusion meant that all of the retirees’ arguments failed.

Issues on appeal

· Issue 1: The retirees have an entitlement to or interest in the excess funds by reason of the deferred wages theory.

· Issue 2: The retirees have an entitlement to or interest in the excess funds because they are trust monies held by OMERS for them.

· Issue 3: The retirees’ trust interest in the excess funds is not defeated by the contribution holiday taken by the Police Board.

· Issue 4: The retirees have an entitlement to or an interest in the excess funds because they constitute a surplus out of a pension plan that is being wound up in part.

· Issue 5: In the alternative, the retirees have an interest in the excess funds because they constitute surplus and the PBA restricts the use of surplus even from ongoing plans.

Analysis

[11] As is evident, the issues on appeal mirror the issues that were determined adversely to the appellant on the motion below. We did not call upon the respondents in this court because we are in substantial agreement with the reasons of the motions judge in dismissing the motion. We would note, however, that the appellant modified its position with respect to its first argument before the motions judge to submit in this court that its members had a beneficial interest in part of the plan, as opposed to the whole plan, by reason of the creation of the surplus. We do not think this alters the appellant’s problem of establishing that a distinct fund emerged from the circumstances that gave rise to the surplus.

[1] We feel that we should comment briefly on the deferred wages argument advanced by the appellant. That argument is essentially that the retirees earned an interest in the excess funds, quite apart from trust principles, by agreeing to forego higher wages in favour of receiving pension benefits. The retirees are said to have an interest in the excess funds because they were created in part through their labour.

[2] The appellant’s argument based on the deferred wages theory was not one of the major arguments before the motions judge. She commented “in passing” that s. 117(3) of the Municipal Act, R.S.O. 1990, c. M. 45 defeats the argument that the retirees have a claim to the excess funds on the basis of the deferred wages theory. This subsection prevents a municipality or local board from contributing funds to a pension plan so as to create a surplus. The motions judge stated that because the retirees are entitled to limited benefits, “…the benefits bought by the deferral of wages are now being received. There was no intent to create, and indeed a clear prohibition on creating, benefits in excess of these amounts” (para. 96).

[3] In their written submissions, the respondents do not rely on the motions judge’s comments regarding s. 117(3) of the Municipal Act to rebut the appellant’s deferred wages argument. The respondent OMERS Board comments that the significance of that statute was not argued before the motions judge and goes on to indicate its disagreement with her analysis. This respondent instead relies on a 1963 decision of the British Columbia Supreme Court[^2] as support for the proposition that absent express language in the plan to the contrary, retirees have no interest in the surplus remaining in a pension fund where there is no alteration or discontinuance of what was promised them in the original plan. OMERS Board finds support as well in recent decisions of the United States Court of Appeals (7th Circuit)[^3] and the U.S. Supreme Court[^4]to the effect that retirees have no entitlement to share in a plan’s surplus even if it is partially attributable to the investment growth of their contributions. Retirees only have a right to the level of benefits they have been promised. Finally, the English Court of Appeal[^5] has ruled to the same effect.

[4] The respondent Police Board adopted the submissions of the respondent OMERs Board concerning the Canadian, American and United Kingdom case law supporting the view that retirees have no inherent right to pension surplus. The respondent Associations relied on Hughes Aircraft, supra in arguing that the retirees have no interest in the excess funds by reason of the deferred wages theory.

[5] We accept the respondents’ position that a defined benefit plan does not support a deferred wages argument. In this case, the parties bargained for a certain level of benefits and the retirees are now receiving those benefits. In the circumstances it is not necessary for us to determine whether the motions judge was correct in relying upon s. 117(3) of the Municipal Act to determine this point adversely to the appellant.

[6] Accordingly, for the above reasons, we dismiss the appeal with costs.

Signed: “G.D. Finlayson J.A.”

“Doherty J.A.”

“S. Borins J.A.”

[^1]: This court, per Krever J.A., confirmed that the OMERS Board acted within its jurisdiction in setting the five options and requiring bargaining agent consent in Metropolitan Toronto Police Services Board v. OMERS (1999), 1999 3763 (ON CA), 45 O.R. (3d) 622.

[^2]: Jones v. Shipping Federation of British Columbia (1963), 1963 555 (BC SC), 37 D.L.R. (2d) 273 (S.C.).

[^3]: Johnson v. Georgia-Pacific Corp., 19 F.3d 1184 (7th Cir. 1994).

[^4]: Hughes Aircraft Co. v. Jacobson, 199 S. Ct. 755 (1999).

[^5]: Edge v. Pensions Ombudsman, [1999] 4 All E.R. 546 at 567 (C.A.), affirming 2 All E.R. 547 (Ch. D.).