On June 26, 2008, the Federal Court of Appeal released a unanimous decision in Cousins et al. v. Attorney General of Canada and Marine Atlantic Inc. in which the Appeal Court accepted the employer’s arguments that the federal Pension Benefits Standards Act (PBSA) reflects a different legislative scheme from that in Ontario and, therefore, no surplus distribution on partial plan termination is required.

Background

The appellants were former employees of Marine Atlantic Inc. (MAI) and former members of the federally regulated Pension Plan for Employees of Marine Atlantic Inc. Between 1997 and 2000, MAI implemented certain changes in its operations and as a result, the appellants and other employees were terminated from employment. In connection with those employment terminations, MAI implemented a number of partial terminations of the plan. MAI prepared the related partial termination reports on the basis that there was no requirement to pay out to the affected members a proportional share of surplus existing in the plan at the time of the partial terminations. The Office of the Superintendent of Financial Institutions took no steps to require such a distribution.

Following the release of the Supreme Court decision in the Monsanto case, which determined that subsection 70(6) of the Ontario Pension Benefits Act (PBA) requires surplus distribution on a partial plan wind-up, counsel for the MAI appellants sought to have Monsanto applied to the plan pursuant to subsection 29(12) of the PBSA. The Superintendent declined to grant the relief requested by the appellants and, as a result, they commenced applications to the Federal Court for judicial review. The Federal Court heard only one of the three applications, as the other two were out of time. Reviewing the Superintendent’s decision on a standard of correctness and relying heavily on Monsanto, the Federal Court found that the scheme of the PBSA was consistent with requiring that there be a proportional distribution of surplus on or shortly after partial termination.

The Federal Court of Appeal Decision

MAI appealed to the Appeal Court, which overturned the decision of the Federal Court. According to the Appeal Court, the proper standard of review to be applied to the federal Superintendent’s decision was reasonableness. The Appeal Court further held that under either a reasonableness or a correctness standard, the Federal Court erred in interfering with the Superintendent’s decision. According to the Appeal Court, the distinctions between the Ontario legislation in Monsanto and the federal legislation at issue were material and justified distinguishing Monsanto from the MAI case. Consequently, the Appeal Court determined that Monsanto could not be treated as binding authority for the proposition that members of a federally regulated pension plan have a right to a distribution of surplus at the time of a partial termination under the PBSA.

In describing the significant differences between the PBA and the PBSA, the Appeal Court focussed on the definitions of “termination” and wind up” in the respective legislation, noting that unlike the PBA, which treats the two terms as occurring simultaneously, the PBSA contemplates winding-up as a step that follows termination of a plan. The Court went on to explain how these definitions affect the interpretation of subsection 29(12):

[43] The fact that, unlike the PBA, the PBSA treats “termination” and “winding-up” as separate and distinct terms that occur at two different periods of time is relevant to the interpretation of subsection 29(12) of the PBSA. Whereas subsection 70(6) of the PBA equalizes the rights of members on a partial and full wind-up, subsection 29(12) of the PBSA equalizes the rights of members on a partial and full termination. The PBSA defines a “surplus” to mean the amount by which the assets of a pension plan exceed its liabilities (i.e. the pension benefits owed to members). Assets and liabilities cannot be precisely determined until a plan is wound-up. As such, the existence of any actual or real surplus is determined at some point after the termination of a plan, and the distribution thereof would be the final step in the wind-up process. Accordingly, the federal scheme itself appears to preclude a right to a distribution of surplus from being a right on termination subject to subsection 29(12) of the PBSA. The suggestion by counsel for the applicants that while a right to a distribution of surplus crystallizes after the time of termination, such a right is somehow retroactive to the time of termination is without any merit. [emphasis added]

Implication for Employer-Sponsors of DB Plans

Marine Atlantic is a helpful decision in that it clarifies that the Monsanto decision should not be summarily imposed on other jurisdictions whose pensions legislation contains language similar to subsection 70(6) of the PBA—rather, should the issue of surplus distribution on partial wind-up reach the tribunals and courts of other Canadian jurisdictions, a detailed analysis of that particular jurisdiction’s pensions legislation will be required.

The case also provides insight on how deficits should be dealt with on termination of a federally registered plan. In identifying differences between the PBA and the PBSA, for purposes of reaching its decision on the surplus issue, the Appeal Court also compared subsection 29(6) of the PBSA and subsection 75(1) of the PBA and stated at paragraph 44 that “subsection 29(6) of the PBSA is in fact different from subsection 75(1) of the PBA in that only the latter ensures that the employer is responsible for any deficit in the pension plan on wind-up, whereas the former limits the obligation of the employer, essentially, to the payment of accrued contribution obligations that are outstanding at the time of termination of the particular plan.”

What’s Next

We will watch to see whether the respondents in this case seek leave to appeal this decision to the Supreme Court of Canada. This must be done by September 25, 2008.

Caroline Helbronner is a partner in the Pension & Employee Benefits and Tax Groups in the Toronto office of Blake, Cassels & Graydon LLP. Her practice relates primarily to pension, benefit and compensation issues, and related investment arrangements.

Copyright © 2019 Transcontinental Media G.P. Originally published on benefitscanada.com

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