New Brunswick’s shared-risk conversion faces a flurry of legal attacks

Employers across the country are keeping a close eye on New Brunswick, as the province becomes the legal battleground where decisions on the scope of the right to convert defined benefit pension plans into target benefit plans will likely play out.

“The judge in our case has already acknowledged that all eyes in Canada are on this litigation,” says Ari Kaplan, a Toronto lawyer. Kaplan is co-counsel for the plaintiffs, who are all members of a group known as Pension Coalition NB, in the case of Kennedy v. New Brunswick.

Kennedy is one of three cases challenging the New Brunswick government’s unilateral decision to convert its public sector defined benefit plan to a target benefit arrangement, also known as a sharedrisk plan. The challenges, which all relate to the province’s public service pension plan, have already given pause to other governments contemplating similar actions. “Governments will be reluctant to introduce innovative pension reform that involves thinking outside the box, until this litigation is resolved,” says Jana Steele, a partner in Osler Hoskin & Harcourt LLP’s pensions and benefits practice in Toronto.

Read: Are New Brunswick’s shared risk plans on target?

But the issue will affect the private sector as well as the public sector. “The New Brunswick legislation authorizes conversion to shared-risk plans, without distinguishing between the public and private sector and without distinguishing between single-employer and multi-employer plans,” says Kaplan.

In materials filed by Kaplan with the court, Lorne Sossin, dean of Osgoode Hall Law School at York University, says the case “raises issues not just relating to vested pension rights, but also, importantly, to the health and related harms which may flow from unilaterally altering those rights, or shrouding those rights in uncertainty.”

Inflationary changes a sticking point

The issues took shape in December 2013 when the legislature passed its Act Respecting Public Service Pensions, which repealed the public service superannuation plan as of Jan. 1, 2014. The new legislation’s thrust was to allow the government to convert the defined benefit plan that existed under the old legislation to a shared-risk arrangement, with the assets of the old plans transferred to the new one.

Perhaps most controversially, the changes eliminated the indexed cost-of-living adjustments applied under the old legislation, replacing them with conditional and discretionary adjustments based on the performance of the pension fund in the future. “The legislation allows vested pension benefits to be eliminated, without any recourse to pensioners in court or otherwise,” says Kaplan.

Of the three challenges that have emerged, two involve arguments under the Charter of Rights and Freedoms, while the third seeks damages based on breach of fiduciary duty.

Read: New Brunswick public service pension board approves cost of living increase

Kennedy focuses on the elimination of automatic cost-of-living adjustments and whether it impinges on pensioners’ rights to security of the person, as guaranteed by the Charter. “We maintain that the unilateral change amounts to an expropriation of pensions that were already vested,” says Kaplan. “How do you tell a 90-year-old who has been on a fixed pension longer than he or she was an employee that you now need to roll the dice during the remaining years of your life? How can that be only a minimal impairment of the Charter’s guarantee of security of the person?”

The pensioners also claim the new regime discriminates against them on the basis of their age. In court documents, they note the average age of the 13,770 pensioners was more than 70. About 2,600 were over 80 and 1,300 were more than 85 years old. On average, they received a relatively modest $20,827 in pension benefits.

Savings claims questioned

In its pleadings, the government maintains that the province has addressed “an immediate additional liability of approximately $2.5 billion” by not grandfathering cost-of-living adjustments. But the pensioners filed actuarial evidence from the former chief actuary of Canada, Bernard Dussault, who estimated that the government’s elimination of the vested cost-of-living benefit saved only about onequarter of the province’s estimate, or some $642.7 million. According to Dussault, however, even that saving is too high. If the pensioners received the promised goal of 75 per cent of the previously vested inflation adjustment under the new plan, he concluded in his affidavit, it would cost the province only an additional $161 million to make the pensioners whole.

“Measured as a proportion of the total budget, the $161 million necessary to make pensioners whole on the vested COLA benefits is a one-time accounting equal to approximately 1.9998 per cent of one year’s budget,” Dussault stated.

Read: New Brunswick public pensions create independent investment manager

In May, the Court of Queen’s Bench of New Brunswick ordered that the Kennedy case be managed jointly with Levesque v. New Brunswick, in which the plaintiff is suing not only the provincial government, but also three unions (the New Brunswick Union of Public and Private Employees, the New Brunswick Nurses Union, and the International Brotherhood of Electrical Workers Local 37), and the trustees of the new shared-risk plan.

New Brunswick lawyer Pete Mockler, who represents plaintiff Guy Levesque, is seeking damages. But he’s not relying on Charter arguments; instead, he says the defendants have committed breaches of contract, trust and fiduciary duty. He claims the unions and the trustees breached the terms of his employment by concurring in the transfer of assets to the new fund and other terms of the legislation.

Mockler believes a precedent established in 2012 favours his client.

“While the discussion about the shared-risk plan were ongoing, the government applied for a ruling on whether the province could relieve itself of its liability under the old legislation to top up the COLA adjustments, if there was insufficient money in the plan for that benefit. The judge ruled that the benefits were vested and couldn’t be taken away by negotiation.”

Read: CUPE joins New Brunswick public pension lawsuit

Ronald Pink of law firm Pink Larson in Halifax represents the trustees of the shared-risk plan. He maintains the legislation is a necessary and reasonable solution to the pension conundrum.

“Nowhere is there an employer with a DB plan who is not under water, and every government is trying to find a way to reduce these liabilities,” he says. “At the same time, the objective is to continue providing a reasonable retirement allowance, and the way they’ve chosen to achieve that balance is by removing guarantees from employers and making pensions a joint venture with employees.”

Unions challenging the government’s actions

The third case is a union-driven one launched in February by the Professional Institute of the Public Service of Canada. In July, the Canadian Union of Public Employees announced it was seeking permission from the court to intervene in the case, Professional Institute of the Public Service of Canada v. Province of New Brunswick. Both unions have members in the public service pension plan. The institute says its concern is the security, affordability, transparency and equity of the sharedrisk plan. CUPE is of like mind, saying the changes reduce benefits and security and militate against improvements in future collective agreements.

From a legal perspective, the unions are relying on the Charter’s guarantee of freedom of association. “The unions are arguing that acting unilaterally amounts to a prohibition on collective bargaining that infringes on the right of association,” says Kaplan.

Read: How to communicate shared-risk plan designs

In a series of cases decided in 2015, the Supreme Court of Canada enshrined the right to strike as an “indispensable component” of collective bargaining. The decisions mean unilateral actions by governments are now subject to greater scrutiny, and legislation limiting collective bargaining rights can go no further than the courts deem absolutely necessary.

Kaplan says he doesn’t oppose conversions to shared-risk plans in principle. “But the conversion has to be done in accordance with the rule of law, and that involves real negotiations and meaningful consent. Converting unilaterally and then immunizing the employer from liability just doesn’t cut it.”

None of the allegations in the three actions have been proven in court and the provincial government is defending the cases. In Levesque, the defendants have moved to strike the action. In the case involving the two unions, the government has delivered its statement of defence. And in Kennedy, the court dismissed a motion for representation in late October.

Julius Melnitzer is a freelance writer based in Mississauga, Ont

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