Federal and provincial pension benefits standards legislation may be similar, but plan sponsors need to acknowledge the differences between them.

Sponsors of defined benefit (DB) pension plans governed by the federal Pension Benefits Standards Act (PBSA) recently breathed a collective sigh of relief. In Cousins et al. v. Attorney General of Canada and Marine Atlantic Inc. (Marine Atlantic), the Federal Court of Appeal concluded that the PBSA does not require surplus to be distributed on partial termination of a pension plan.

In addition to the obvious impact the actual decision has for federally regulated plans, such as Marine Atlantic, the decision reflects an analytical approach by the Court that should also be of interest to sponsors and administrators of pension plans governed by provincial pension benefits standards legislation.

In the late 1990s, Marine Atlantic Inc. declared three separate partial terminations of its DB pension plan when the plan was in a surplus position. During this time, the partial terminations did not cause consternation for anyone. Plan members received their accrued benefits. The plan’s regulator, the Office of the Superintendent of Financial Institutions (OSFI), did not require surplus to be addressed in the context of a partial plan termination.

Then along came Monsanto Canada Inc. v. Ontario (Monsanto). In July 2004, the Supreme Court of Canada concluded that the Ontario Pension Benefits Act (PBA)—in particular, section 70(6)—required the distribution of any applicable surplus on a partial plan windup. Some plan members affected by the earlier partial terminations of Marine Atlantic’s plan latched on to the Monsanto decision and argued that since the PBSA has a provision that is similar to section 70(6) of the PBA, any surplus relating to the partial terminations of Marine Atlantic’s plan must be distributed.

OSFI did not accept the argument. It concluded that the PBSA was different from the PBA and that the Monsanto decision, therefore, did not apply. However, when the Federal Court at the lower level considered the issue, it chose to simply follow Monsanto on two accounts: first, on the issue of whether or not surplus was required to be distributed, and second, on the degree of deference that should be given to OSFI’s initial decision on the surplus distribution point.

The Federal Court of Appeal disagreed. On the question of whether the employer was required to distribute the surplus, the Court undertook a detailed analysis of the PBSA. It concluded that “the distinctions between the Ontario legislation considered in Monsanto and the federal legislation at issue in this case are material and justify distinguishing Monsanto…” and that “such legislative distinctions must be respected by the Court and given meaning.”

Regarding the degree of deference to be given to OSFI’s original decision, the Court concluded that the judge in the lower Federal Court was wrong in “summarily relying on the conclusion reached in Monsanto without further analysis.” After undertaking that analysis, the Court of Appeal concluded that the initial OSFI decision should be given a high degree of deference.

Beyond the importance of the specific decision in Marine Atlantic on the surplus consequences of a partial plan termination, this case reinforces the fact that the Canadian pension system is not uniform. It is a collection of 10 legislative schemes for pension benefits standards (nine provincial and one federal). These schemes, although similar in many respects, are indeed different, and thus different results may follow from similar situations. Therefore, in working to resolve a pension plan problem, plan sponsors and administrators must identify the applicable legislative regime and review that legislation in detail to ensure they’ve found the right solution.

Tony Devir is a partner in the pension and benefits department at Osler, Hoskin & Harcourt LLP. adevir@osler.com

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© Copyright 2008 Rogers Publishing Ltd. This article first appeared in the August 2008 edition of BENEFITS CANADA magazine.