PLAN SPONSORS OF DEFINED BENEFIT PENSION PLANS IN British Columbia that contain discretionary consent provisions should take note of the recent decision in Patrick v. Telus Corporation. The British Columbia Supreme Court upheld a plan sponsor’s decision to withhold consent for discretionary enhanced early retirement.

The plaintiffs were all former employees and members of the pension plan for management and professional employees of the Telus Corporation. All of the plaintiffs retired or were forced to do so. They then claimed they were entitled to an unreduced early retirement because of a long-standing consent provision. That provision, which stipulated certain age and service eligibility requirements, allowed them the full retirement payout even if it occurred early. Because unreduced pensions had historically been granted without exception.

The evidence at trial indicated that the plaintiffs were aware that committee consent was completely discretionary. But like many other telecommunication companies during this period, in about 2001, Telus was experiencing significant financial challenges. As a result, the company began an expansive downsizing program. All of those who qualified for the 30-year service eligibility were offered severance that contained the enhanced “consent” pensions.

During this same period, at the advice of their actuary, Telus adopted more conservative pension assumptions given that the plan had unfunded liabilities of close to $180 million by 2002. These series of unfortunate events caused the committee to change its earlier approval policy for consent pensions to one where only in “exceptional circumstances such as humanitarian reasons” would early retirement enhancement receive consent. Shortly thereafter, Telus terminated eight of the 10 plaintiffs(the other two had been terminated a few years earlier without consents). The loss of the enhancement dealt a fairly serious financial blow to the plaintiffs ranging from $471 to $1,347 per month. The terminated members sued alleging, among other things, that: consent is inherent in an involuntary termination, the benefits committee did not have the authority to grant or refuse consent; and Telus owed them a fiduciary duty, a duty of good faith, or a duty of reasonableness, and breached its duty to the plaintiffs by refusing consent.

The Court quickly rejected the first submission on the basis of a strict reading of the plan provisions. The second submission was also dismissed on the basis of a plain reading of the mandate Telus granted the committee. Moreover, both the CEO and CFO sat on the committee so the Court was comfortable in deciding the Telus board of directors was aware of and approved the committee’s activities. With respect to the third allegation, Telus cited the case of Imperial Group Pension Trust Ltd v. Imperial Tobacco Ltd., a 1992 English court decision, for the proposition that “It must be open to the company to look after its own interests, financially or otherwise, in the future operation of the scheme in deciding whether or not to give its consent.”

The Court went on to hold that Telus did not therefore breach its duty of good faith by considering its own financial interests that the consent would have on the bottom line. Moreover, Telus was held not bound by the duty of reasonableness or fiduciary obligations when making discretionary decisions in a pension context. Citing the 2005 B.C. case of Neville v. Wynne, which involved an examination of the discretionary power of pension trustees to effect a pension benefit reduction of union sponsored plan, the Court in Telus refused to interfere with the committee’s discretion primarily because there was no evidence that the committee acted in bad faith or considered “irrelevant”, “improper” or “irrational” factors in arriving at their decision to refuse consent.

Scott Sweatman is associate counsel at Blake, Cassels & Graydon in Vancouver.


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