In the first instalment of this article, we looked at the impact of traditional trust law concepts on pension disputes, and saw how the application of those principles often resulted in decisions that severely restricted pension plan sponsors’ ability to administer their pension plans in a practical manner. Recent cases have reversed this trend, starting with the Buschau case in the Supreme Court, described in the first instalment.

Kerry: Ontario Court of Appeal

More good news for pension plan sponsors came after the Buschau case, when the Ontario Court of Appeal released its decision in the Kerry appeal. Pursuant to the lower court decision, the Kerry case had placed severe restrictions on plan sponsors’ ability to add new groups of members to a pension plan and use existing surplus assets to fund their benefits.

On the issue of using DB surplus to make employer contributions to the DC component of the plan, the Court said that adding a DC component to a plan does not automatically mean that a separate pension plan and separate pension fund has been established. Rather, provided the documentation properly reflects the situation, a plan sponsor can add a DC component to a pension plan and use DB surplus to fund DC benefits, so long as the new DC members are made beneficiaries of the DB fund. This is a common-sense result.

Sutherland v. Hudson’s Bay Company: More Good News

The Kerry decision was subsequently followed in the recent case of Sutherland v. Hudson’s Bay Company. In Sutherland, like Kerry, plan members had complained about DB surplus being used to offset the employer’s contribution obligations under a new DC component of the plan, to which had been added new groups of employees, from Zellers and from Kmart. In essence, the members argued that if the historical trust document says that assets are held for the “exclusive benefit” of plan members, new categories of members can’t be added and surplus used to fund their benefits.

The Ontario court rejected this notion, following the Ontario Court of Appeal’s reasoning in Kerry. The court said that: “the plan documentation should be interpreted on the basis that the governing principles of the plan were intended to be sufficiently flexible to accommodate substantial change to the pension arrangements from time to time.”

Burke v. Hudson’s Bay Company: Continuing the Positive Trend

The lower court decision in Burke v. Hudson’s Bay Company, from 2005, followed in the same vein as the earlier cases such as Transamerica, the court relying on the characterization by the Supreme Court of pension trusts as classic trusts. The facts in Burke are quite simple. In 1987, the Hudson’s Bay Company (HBC) sold its Northern Stores Division to the North West Company. The HBC pension plan was in surplus at the time. Employees who were transferred to the new company had their accrued pension benefits transferred into their new employer’s pension plan, and assets were transferred to the new pension plan that were equal to the value of those benefits. No surplus was transferred into the new plan. The affected members sued, claiming that surplus should have been transferred into their new pension plan.

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