The Financial Services Tribunal of Ontario has awarded an employer with a $320,000 pension surplus, despite the plan’s trust agreements’ silence as to surplus entitlement.

“The requirements for an employer to receive 100 per cent of surplus are strict, but the tribunal took a practical [approach] as opposed to a narrow interpretive approach to the plan documents,” says Jennifer Agnew, a senior lawyer at Brown Mills Klinck Prezioso LLP, who represented the employer Crosby Canada Inc. before the tribunal.

While the plan text clearly stated Crosby was entitled to surplus, the trust agreements that funded the plan didn’t deal with surplus entitlement and some of them didn’t explicitly state that the plan text was part of the trust agreements.

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“Surplus jurisprudence states that plan text provisions can be used to determine whether an employer is entitled to surplus in cases where a trust agreement funds the plan,” she says. “But this applies only if the plan text is ‘incorporated by reference’ into the trust agreements and that text does not conflict with the trust terms.”

When Crosby applied to the Financial Services Regulatory Authority of Ontario for payment of the $320,000 surplus relating to a partial windup of the plan in 1999, the regulator concluded the trust agreements didn’t explicitly incorporate the plan texts and therefore didn’t entitle Crosby to the surplus.

The organization appealed to the tribunal, arguing the jurisprudence didn’t require explicit incorporation of plan text to establish surplus entitlement and that the trust agreements made many references to the plan text and didn’t conflict with it.

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The tribunal agreed with Crosby and concluded “the two sets of documents were intended to be read together, as an integrated whole,” noting pension plan text can inform a trust agreement’s interpretation where it’s “inherently relevant and . . . [its] terms do not conflict with the terms of the trust.”

The tribunal said if it determined Crosby wasn’t entitled to the surplus, it would be an “artificial and unnatural interpretation” of the plan documents. Jordan Fremont, a pension, benefits and executive compensation partner at Bennett Jones LLP who wasn’t involved in the case, agrees. “The potential consequences of refusing Crosby the surplus could have had absurd results.”

Agnew believes the tribunal’s decision adds clarity to the meaning of ‘incorporated by reference.’ “When the Supreme Court of Canada formulated the IBR doctrine, it did not explain what IBR means. Now we know that the standard for concluding that pension text is incorporated by reference is not a very high one.”

The Crosby case is particularly impactful because surplus cases are now arising with some regularity, she adds. “After almost two decades of deficits, funding status has improved in recent years. So we’re seeing surplus issues come up for the first time in a very long time.”

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