Since the early 1990s, the Régie des rentes du Québec has maintained the position that if an employer withdrew from participation in a pension plan, including a multi-employer pension plan, the benefits promised to members could not be reduced even in the event that those benefits were not fully funded.

On April 2, 2008, the Quebec Court of Appeal disagreed with this position, ruling unanimously in favour of the employer in Multi-Marques Distribution Inc. v. Régie des rentes du Québec, by stating that the employer had no obligation to fund a deficit following its withdrawal from participation in a multi-employer pension plan as a result of a partial wind-up.

In this case, Multi-Marques Distribution Inc. was a participating employer in a multi-employer pension plan registered with the Régie. The plan has both a defined benefit component and a defined contribution component and is funded solely by employer contributions.

The dispute involved unionized employees of two divisions of Multi-Marques who were granted past service pension credits at the time the divisions were acquired by Multi-Marques. The past service pension credits were given based on the assumption that the contributions required to cover the cost would be paid over a period of 15 years. However, the plan became subject to partial wind-ups with respect to these divisions before the end of the 15 year period. As a result of the partial wind-ups, contributions by the employer in respect of members involved in the partial wind-ups ceased. The plan found itself in a deficit position such that the assets of the plan were insufficient to cover the full amount of benefits related to the past service pension credits. The plan members affected by the partial wind-ups demanded that the employer fund the promised benefits.

In its defence, the employer relied on the provisions of the plan text which clearly provided that, in the event of the employer’s withdrawal from the plan as a result of a partial wind-up, the benefits of the members could be reduced if plan assets were insufficient to cover the promised benefits.

Plan Text Incompatible With SPPA?

The Court had to determine if the provisions of the plan text that allow a reduction in benefits in the event of the plan’s partial wind-up are incompatible with Quebec’s Supplemental Pension Plans Act (SPPA).

In decisions rendered between 2002 and 2006, the Régie, the Administrative Tribunal of Quebec and the Quebec Superior Court all agreed that the past service pension credits granted by the employer represented a debt toward the members, and that the employer had a legal obligation to fund the deficit as set out in Articles 211 and 228 of the SPPA. Unlike what prevails in other Canadian jurisdictions, a deficit at the time of a partial wind-up could not justify a reduction in benefits because the plan text clauses invoked by the employer were deemed to be incompatible with the SPPA.

Quebec Court of Appeal Decision

In its unanimous decision, the Quebec Court of Appeal reversed the previous decisions by stating that:

• Since the employees involved in the dispute are unionized, their rights under the plan are subject to a contract resulting from negotiations between the employer and the union. In addition, the value of the normal pension or the method of calculation must be determined or indicated by the plan and not by the SPPA.

• The SPPA does not prevent employer obligations from being subject to certain conditions. On the contrary, the fact that the SPPA allows a plan to define the nature of refunds and benefits, the methods of calculation and the entitlement conditions regarding such benefits means that the rights of members may be subject to certain conditions.

• The provisions of the plan text that provide for a reduction in benefits, in the event an employer withdraws from the plan pursuant to a partial wind up when the plan is not 100% solvent on a going concern basis, are applicable because they are not incompatible with the SPPA.

The Court ordered that the case be returned to the Régie in order that the Régie can review its previous decisions.

In cases where pension plans are governed by collective agreements, this decision by the Quebec Court of Appeal is contrary to the current position of the Régie and highlights the importance of crafting contracts carefully based on a clear understanding of the intent of the parties to such contracts since the rights of plan members are subject to them.

The Régie has indicated that it will appeal this decision to the Supreme Court of Canada.

Rosanne Guidon is a legal advisor in the pension and benefits practice at Aon Consulting’s Montreal office. She began her career as a notary and title attorney in private practice and then worked at the head office of the National Bank of Canada from 2004 to 2007. Rosanne obtained her law degree from Ottawa University in 2000 and is a member of the Chambre des notaires du Québec.