A pension dispute that has been before courts and regulators for more than a decade is undergoing a further appeal, this time to the Federal Court of Appeal (FCA). In Buschau v. The Attorney General of Canada and Rogers Communications Inc. (Buschau), the Federal Court of Canada (FCC) recently held that the decision made by the Office of the Superintendent of Financial Institutions (OSFI) to not terminate a closed pension plan was unreasonable and returned the matter to the superintendent of OSFI (Superintendent) for redetermination. The plan sponsor, Rogers Communications Inc. (RCI), has initiated an appeal to the FCA, and the plan members have brought a cross-appeal.
While the eventual outcome of this dispute is primarily of interest to federally regulated pension plan sponsors, the courts have addressed issues that could be applicable to all plan sponsors. These include questions about the circumstances under which plan sponsors might permit an extended contribution holiday and those that will require them to terminate and wind-up a pension plan.
RCI acquired Premier Communications in 1980 and froze the Premier Communications Pension Plan in May 1984. RCI removed a portion of the Premier plan’s surplus in 1985. In 1992, RCI merged the Premier plan with four other plans, three of which were in a deficit position.
In 2001, the British Columbia Court of Appeal (BCCA) ordered RCI to return the surplus funds it withdrew, plus interest, to the trustee of the Premier plan. The BCCA found that the members of the Premier plan retained rights distinct from the members of the other plans with which it was amalgamated, and that the Premier plan continued to exist as a separate entity. The matter continued through the courts, and in 2006 the Supreme Court of Canada (SCC) held that the decision to terminate the Premier plan was to be made by the regulator, not the courts. As the Premier plan is federally regulated, this decision was the responsibility of OSFI.
The SCC noted that the Premier plan might be considered terminated by the Superintendent because there had been a cessation of crediting of benefits, pursuant to the definition of termination in the Pension Benefits Standards Act (PBSA). This was somewhat contrary to the Superintendent’s findings, as she noted that a few members were still accruing benefits. Alternatively, the SCC noted that the Superintendent could declare that the Premier plan was terminated because there had been a cessation of contributions, pursuant to subsection 29(2)(a) of the PBSA. The SCC held that the extended contribution holiday could be interpreted as a cessation of contributions and be considered illegitimate if it was used to hide an improper refusal to terminate a pension plan.
Based on the SCC decision, the plan members asked the Superintendent to either terminate the Premier plan or direct RCI to terminate the plan and order a wind-up and distribution of surplus to the members. The Superintendent denied this request in 2007, finding that the Premier plan had not been terminated by lack of contributions or lack of activity, that termination was an extreme measure and that there were insufficient reasons to make such an order. The members sought judicial review of the Superintendent’s decision by the FCC.
On Sept. 11, 2008, the FCC allowed the judicial review and held that the Superintendent’s decision to not terminate the Premier plan was unreasonable, based on the appropriate standard of review for questions of mixed law and jurisdiction.
The FCC held that it was unreasonable to not interpret the extended contribution holiday as a trigger to terminate the plan and order a wind-up. The FCC also applied the SCC’s findings that legitimate contribution holidays can be considered illegitimate if they are used to hide an employer’s improper refusal to terminate a pension plan, noting RCI’s earlier improper actions as evidence of an illegitimate contribution holiday and grounds for determining that the Superintendent’s findings were unreasonable. The parties are now appealing and cross-appealing to the FCA.
The FCC decision raises the prospect that a contribution holiday that complies with the pension legislation and the terms of the plan can still be challenged on more subjective grounds such as the intention of the employer. While the contribution holidays taken by RCI might have been in accordance with the PBSA, the FCC looked behind the actions to focus on RCI’s intent in taking them. It appears to have found that an “improper motive” can constitute sufficient grounds for the superintendent to terminate the Premier plan.
The outcome of the appeal should provide plan sponsors with clarity on a regulator’s ability to permit extended contribution holidays. The Superintendent in this case accepted the extended contribution holiday and did not interpret that fact as requiring a termination of a pension plan. She also did not consider RCI’s past behaviour relevant in determining the legitimacy of the contribution holidays.
If not overturned on appeal, this decision could lead to challenges in other closed pension plans over contribution holidays and seeking plan terminations. Plan sponsors will need to consider how their actions could be viewed by outside parties, regardless of whether those actions are permitted by the terms of the PBSA and regulations.
Leanne Hull is a research lawyer and Karen DeBortoli is the director of Watson Wyatt Worldwide’s Canadian Research & Innovation Centre