CITATION: McHayle v. CEO of Financial Services Regulatory Authority, 2022 ONSC 1534
DIVISIONAL COURT FILE NO.: 326/21
DATE: 20220311
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Sachs, Morgan and D.L. Edwards JJ.
BETWEEN:
ERROL McHAYLE
Appellant
– and –
CHIEF EXECUTIVE OFFICER of the FINANCIAL SERVICES REGULATORY
AUTHORITY, OPSEU PENSION PLAN TRUST FUND, ONTARIO PUBLIC SERVICE EMPLOYEES’ UNION, and HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO as represented by TREASURY BOARD SECRETARIAT
Respondents
Andrew Jia, for the Appellant
David Stamp and Graeme Rotrand, for OPSEU Pension Plan Trust Fund
Markus Kremer and Veronica Sjolin, for the CEO of the Financial Services Regulatory Authority
Susan Ursel and Erin Epp, for the Ontario Public Service Employees Union
Lisa Compagnone and Mariette Matos¸ for Her Majesty the Queen in Right of Ontario as represented by Treasury Board Secretariat
HEARD at Toronto (by videoconference): February 15, 2022
E.M. Morgan J.
I. Introduction
[1] This is an appeal from a decision of the Financial Services Tribunal (“FST”), with respect to the interpretation and validity of an amendment of a pension plan.
[2] The question before the FST was whether the Appellant, an employee in the Ontario public service since 1994, should have received a payment reflecting “Excess Commuted Value” (the “Excess”) when he transferred from the Ontario Public Service Employees’ Union Pension Plan (the “OPSEU Plan”) to the Public Service Pension Plan (the “PSPP Plan”) in 2015. The transfer of pension plans was necessitated by the Appellant’s promotion to a management position within the public service.
[3] The specific question posed by the Appellant raises a more general issue concerning the validity of Amending Agreement No. 22 to the OPSEU Plan (“Amendment 22”) under the Pension Benefits Act, RSO 1990, c. P.8 (“PBA”). That Amendment took away the authority of the OPSEU Plan’s administrator, OPSEU Pension Plan Trust Fund (“OP Trust”), to make Excess payments to transferring plan members.
[4] Amendment 22 was effected in 2013, two years prior to the Appellant’s promotion. If the Appellant had transferred plans before Amendment 22 the Appellant would have been entitled to the Excess payment. However, because his transfer occurred after Amendment 22 he was not paid the Excess.
[5] The Appellant applied to the FST for a determination that Amendment 22 was void and that he was entitled to the Excess.
[6] The FST concluded that the Excess was not a “pension benefit” under the PBA, and that Amendment 22 was not contrary to the statute. In addition, the FST reasoned that the Excess was not “accrued” by the Appellant at the time of his transfer, and therefor its payment to the Appellant did not fall within the protection afforded by section 14 of the PBA which prohibits a reduction in the accrued value of a pension.
[7] For the reasons that follow, I agree with the conclusion of the FST and would dismiss the appeal.
II. Factual background
[8] The OPSEU Plan is a defined benefit pension plan established for the benefit of Ontario public service employees and in which OPSEU members all participate. Under a Reciprocal Transfer Agreement between the OPSEU Plan and the PSPP Plan (“RTA”), an OPSEU member’s service under the OPSEU Plan is transferred to the PSPP Plan upon the member being promoted to a management position within the public service and transferring without a break in employment. In this way, the RTA creates a means of transferring credited service time and facilitates the seamless transfer between plans by preserving continuity of the member’s pension, eligibility, and other rights associated with the OPSEU Plan.
[9] The arrangement is designed to benefit the employee/OPSEU member. As the FST put it in the decision below: “[W]ithout the RTA, it is more likely than not that the pension benefits that Mr. McHayle will become entitled to would be significantly less than they will be under the RTA”: McHayle v. Ontario (CEO of FSRA), 2021 ONFST 2, at para 87 (“McHayle FST”).
[10] In August 2013, OPSEU and the Ontario government, acting through the Treasury Board, amended the OPSEU Plan through Amendment 22. Prior to that, members who transferred from the OPSEU Plan to the PSPP Plan would have received an Excess payment reflecting an amount by which the commuted value of their credits under the OPSEU Plan exceeded the amount that the OPSEU Plan was required to pay the PSPP Plan upon transfer of the member to the PSPP Plan. This was a one-time, lump sum payment that was only available to those members transferring to the PSPP Plan. Calculation of the commuted value of the pension was – and, in the case of terminations other than transfers to the PSPP Plan, still is – done in accordance with section 19(1) of the PBA Regulations.
[11] Payout of the Excess upon transfer to the PSPP Plan was eliminated under Amendment 22. Accordingly, after that time it would have been a violation of the terms of the OPSEU Plan for OP Trust, as administrator of the OPSEU Plan, to have paid the Appellant the amount of any Excess.
[12] It is important to note that a commuted value reflects the quantifiable value of a pension benefit at a given point in time; specifically, the date at which a plan member becomes entitled to receive the benefit. That date, most typically, is the date the member terminates employment and thereby terminates membership in the pension plan. Unlike with a transfer of plan under the RTA, a commuted value calculation is based on a pension benefit that has crystalized such that following the member’s termination there will be no more increase in the value of the benefits as a result of increases in the member’s years of service or increase of salary.
[13] Commuted values are typically paid in lieu of a deferred pension. Under section 42(1)(a) of the PBA, they are calculated for the purposes of portability of the pension to another retirement plan. In that case, the commuted value of the crystalized benefit is converted to a lump sum; instead of the future stream of payments from the pension plan, the member then becomes responsible for providing his or her own retirement income.
[14] By contrast, for a transfer under an RTA the commuted value is not a meaningful amount. The importing plan takes over from the exporting plan to provide benefits, and thereby the stream of pension payments becomes the responsibility of the importing plan. The plan member does not forego the right to pension payments as happens when the member receives the commuted value in a cash payment.
[15] Prior to Amendment 22, the OPSEU Plan contained a provision which treated a member’s commuted value as a legally required minimum entitlement if the member transferred their pension service to another pension plan, whether it was to the PSPP Plan or any other. Under that former approach, if a member transferred their entitlement out of the OPSEU Plan, and at the time of the transfer the commuted value of their pension benefits was greater than the value required by the importing plan for the transfer, the difference was refunded to the member. This was not a discretionary payment by the OP Trust. Under section 15.4 of the OPSEU Plan, the terminating or transferring member was entitled to receive the Excess amount. However, the calculation of the amount was and is contingent on the timing of the member’s transfer; it could not and cannot be calculated in advance.
[16] After negotiations between OPSEU and the government, and notification of the members, Amendment 22 rescinded section 15.4 of the OPSEU Plan effective August 1, 2013. Members transferring under the RTA no longer get a lump sum payout of the Excess.
[17] It is uncontentious to say that an RTA, properly designed, creates a seamless transfer of benefits between the exporting plan (in the case the OPSEU Plan) and the importing plan (in this case the PSPP Plan). Pension payments and benefits to which the transferring member is entitled upon retirement may change in a minor way as each plan calculates the pension in a slightly different way; but the member’s years of service carry over without any reduction or impact as a result of the transfer to the PSPP Plan. What occurs under the RTA is an accounting adjustment between the exporting and importing plans (since the employer under both plans is the same). This adjustment is not based on the commuted value of the member’s pension under the exporting plan, but on a formula contained in the RTA.
[18] Counsel for OP Trust submits that, post-transfer, the member retains benefits equivalent to the same years of service to which he or she would always have been entitled, although the precise benefits may vary slightly or may cost the PSPP Plan less (or more) than they cost the OPSEU Plan. Any financial impact of the transfer under the RTA falls on the two plans, not on the transferring member.
III. Standard of Review
[19] There is a statutory right of appeal from decisions of the FST under section 91(1) of the PBA. The Supreme Court of Canada instructed in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, at para 37, that the standards of review that apply to a statutory appeal are that of correctness for questions of law and palpable and overriding error for questions of fact or mixed fact and law.
[20] An error is palpable “if it is plainly seen and if all the evidence need not be reconsidered in order to identify it”, and that it is overriding “if it has affected the result”: Hydro-Québec v. Matta, 2020 SCC 37 at para. 33. As this Court pointed out in Quadrexx Hedge Capital Management Ltd v. Ontario Securities Commission, 2020 ONSC 4392, at para 78 (Div Ct), in order to reverse the decision-maker below, the decision must be “unsupported by the evidence.”
IV. Is the Excess a pension benefit?
[21] Section 14(1) of the PBA provides:
14 (1) An amendment to a pension plan is void if the amendment purports to reduce,
(a) the amount or the commuted value of a pension benefit accrued under the pension plan with respect to employment before the effective date of the amendment;
(b) the amount or the commuted value of a pension or a deferred pension accrued
under the pension plan; or
(c) the amount or the commuted value of an ancillary benefit for which a member,
former member or retired member has met all eligibility requirements under the pension plan necessary to exercise the right to receive payment of the benefit.
[22] Accordingly, to be considered void an amendment must affect a pension benefit – i.e. either a “pension benefit accrued”, a “pension or deferred pension” or an “ancillary benefit.” In analyzing the challenge to Amendment 22, the FST correctly focused upon whether Amendment 22 affected a “pension benefit accrued”, within the meaning of section 14(1)(a) of the PBA. The first question is whether the Excess payment, now eliminated, was a pension benefit under the OPSEU Plan or an extra payment that was above and beyond the OPSEU Plan’s benefits.
[23] The Appellant contends that the FST should not have been concerned with whether the Excess amounts to a pension benefit. Rather, Appellant’s counsel submits that the FST should instead have asked whether Amendment 22 had the effect of reducing the commuted value of a pension.
[24] On its face, section 14(1)(a) of the PBA asks whether Amendment 22 is void because it purports to reduce the commuted value of a “pension benefit accrued under the Plan”. It is self-evident that in order to answer this question one must first determine whether the Excess – the elimination of which is the one and only effect of Amendment 22 – is, in fact, a pension benefit accrued under the Plan. If not, then eliminating payment of the Excess has not impacted in any way that could violate the statutory provision. It is only the value of pension benefits that must be preserved, and not any other form of value that pertains to something other than a pension benefit.
[25] The definitions in section 1(1) of the PBA provide that a “pension benefit” is “the aggregate monthly, annual or other periodic amounts payable to a member, former member or retired member during his or her lifetime to which he or she will become entitled under the pension plan or to which, upon his or her death, any other person will become entitled”. In McHayle FST, at para 70, the FST found on the basis of the accounting and financial evidence before it that the Excess is a lump sum that, prior to Amendment 22, was payable only on transfer to the PSPP Plan (or on otherwise exiting the OPSEU Plan) and was extraneous to the payments the member will receive under the OPSEU Plan upon retirement.
[26] As a one-time, lump sum cash payment, the Excess cannot be seen as a “monthly, annual or other periodic amount” payable to a plan member.
[27] Accordingly, the FST was correct in concluding that the Excess was a payment that was made in addition to the pension benefits provided for under the Plan, and that its elimination through Amendment 22 did not impact in any way on the pension benefits that the Appellant will receive: Ibid., at paras 101-103. These conclusions were findings of mixed fact and law. As there was no palpable and overriding error in making the findings on which the FST’s decision rests, the decision is entitled to deference.
V. Has the Excess accrued?
[28] The FST was also correct in holding that the Appellant had not “accrued” a right to the Excess at the time of the implementation of Amendment 22: Ibid., at para 84.
[29] The British Columbia Court of Appeal has specifically held that an accrued benefit “is the amount to which an employee is entitled at any particular moment according to the plan based on his earnings and services to that date”: CASAW Local 1, v. Alcan Smelters & Chemicals Ltd., 2001 BCCA 303 at paras. 45-48. At the time that Amendment 22 was implemented in 2013, the Appellant could not have “accrued” a right to receive an Excess payment, as he had not at that time met the eligibility requirements necessary to receive such a payment. That is, he had not been offered or accepted a management position, and had not had his service transferred to the PSPP Plan or any other pension plan.
[30] Put simply, Amendment 22, at its time of implementation, affected the amount of a payment that any given OPSEU Plan member may receive in the future if certain conditions – i.e. transfer to the PSPP Plan under the RSA – are met. It did not affect an already “accrued” benefit. It therefore does not fall within the prohibition set out in section 14(1) of the PBA.
VI. Has loss of the Excess payment reduced the value of the benefit?
[31] The Appellant’s argument suggests that non-payment of the Excess had the effect of significantly reducing the commuted value of his pension. If that were the case, of course, his challenge to the way in which the transfer of pension benefits occurs under the RTA would be more compelling. However, the evidence before the FST and in the record before this Court indicates that the two sets of benefits are roughly equal; there might be a slight reduction in pension value if calculated the day after transfer, but this is due to differences in the way that the OPSEU Plan and the PSPP Plan calculate benefits and not to the elimination of the Excess payment.
[32] As the tribunal stated in McHayle FST, at paras 85-86:
[T]he transfer of pension assets from the [OPSEU] Plan to the PSPP [was] not based on the [commuted value] of the Plan but on the formula contained in the RTA which is a part of each of the plans.
It is relevant to note, again, that the transfer of pension assets from the [OPSEU] Plan to the PSPP is not based on the CV of the Plan but on the formula contained within the RTA which is a part of each of the plans. That formula has been agreed to by the plan sponsors.
Mr. Goraichy testified that whether the amount transferred was the exact CV calculated the instant before Mr. McHayle’s transfer or a lessor or higher amount based on the formula makes no material difference to Mr. McHayle’s CV as a member of the PSPP the instant after the transfer.
[33] The record contains no evidence that would support the Appellant’s contention that he was treated unfairly, or that the commuted value of the pension that the Appellant was entitled to receive had he retired on the day of his transfer to the PSPP Plan, would have been significantly lower under the terms of the PSPP Plan than it would have been had he remained in the OPSEU Plan. In any event, the transfer under the RTA was seamless as it is designed to be, and the Appellant lost no years of service in the process.
[34] Section 21 of the PBA provides that assets may be transferred from one plan to another pursuant to an RTA, and that is what was done here. There was no violation of any provision of the PBA and no error made by the FST in upholding the transfer.
VII. Disposition
[35] The appeal is dismissed.
VIII. Costs
[36] Counsel for the Appellant submits that even if the Appellant is not successful in the appeal, the costs should be paid by the Respondents. In making this submission, he relies on Alcan Smelters, supra, at para 56, where the British Columbia Court of Appeal awarded costs to the otherwise unsuccessful pension plan member.
[37] The Alcan Smelters case involved interpretation of a plan where the Appellant had raised a question to which all members of the plan were equally interested in obtaining an answer. In the Court’s words, at para 56:
…the litigation concerned issues of the construction of the trust and a difficult question of whether a variation should be accepted. The dispute was not adverse litigation between parties claiming rights to a fund where one party alleges improper conduct of the part of the other.
[38] In the case at bar, the Appellant challenged the RTA as being contrary to the PBA and unenforceable insofar as it eliminated payment of the Excess to transferring members. The FST observed that the reason for the elimination of the Excess payment was to avoid giving a bonus to a transferring member – i.e. a lump sum payment that is above and beyond the value to the member of the pension benefit being transferred – at the expense of the other members of the OPSEU Plan: McHayle FST, at paras 102-03.
[39] In other words, in bringing a challenge to Amendment 22, the Appellant sought extra money from the OPSEU Plan while the Respondents sought to protect the financial integrity and equity of the OPSEU Plan. Unlike in Alcan Smelters, the current appeal cannot be characterized as non-adversarial.
[40] As the Respondents do not seek costs, there shall be no order as to costs.
Morgan J.
I agree _______________________________
Sachs J.
I agree _______________________________
Edwards J.
Released: March 11, 2022
CITATION: McHayle v. CEO of Financial Services Regulatory Authority, 2022 ONSC 1534
DIVISIONAL COURT FILE NO.: 326/21
DATE: 20220311
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Sachs, Morgan, D. Edwards JJ.
BETWEEN:
ERROL McHAYLE
Appellant
– and –
CHIEF EXECUTIVE OFFICER of the FINANCIAL SERVICES REGULATORY AUTHORITY, OPSEU PENSION PLAN TRUST FUND, ONTARIO PUBLIC SERVICE EMPLOYEES’ UNION, and HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO as represented by TREASURY BOARD SECRETARIAT
Respondents
REASONS FOR JUDGMENT
E.M. MORGAN J.
Released: March 11, 2022