If a company’s pension plan has a surplus and that company then sells a division, should a share of the surplus be transferred to the successor pension plan? On Tuesday, the Ontario Court of Appeal appeared to have answered that unresolved question in the field of pension law and said: “no.”

The Court of Appeal’s decision has to do with the case, Burke v. Hudson’s Bay Company. The plaintiffs argued that when HBC sold the assets of its Northern Stores Division to a retail firm that became the North West Company in 1987, they were entitled to the surplus in the HBC plan.

The Ontario Superior Court of Justice agreed with the plaintiffs in its December 2005 decision.

But the Court of Appeal reversed that decision, allowing HBC’s appeal. “A review of those provisions [of the original plan text] leads to the conclusion that the entitlement of plan members was limited to the defined benefits provided by its terms,” says the Court of Appeal’s decision. “Thus, they had no entitlement to surplus.”

Gary Nachshen, a partner in the employment, labour and pension group at Stikeman Elliott in Toronto, says the decision is good news for plan sponsors, adding that the case will be important regarding future mergers and acquisition pension issues.

Benefits Canada has covered the implications for pension plans with regard to a merger and/or acquisition in recent issues. Click here to read Acquiring Minds by Colin Ripsman from the January 2008 issue. And for Done Deal by Andrea Boctor from the September 2007 issue, click here.

To read the decision on the Ontario Court of Appeal’s website, click here.

To comment on this story, email craig.sebastiano@rci.rogers.com.

Copyright © 2020 Transcontinental Media G.P. Originally published on benefitscanada.com

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