A recent Ontario Court of Appeal decision reiterates the plan sponsor's entitlement to paying expenses from a pension fund, says Mitch Frazer in Business Insurance

May 26, 2008

In a ruling favorable to pension plan sponsors, the Ontario Court of Appeal ruled last week that a Canadian employer does not have to share a portion of its pension surplus with employees of a unit it sold two decades ago.

The full impact of the decision in Burke vs. Hudson's Bay Co. will depend largely on the outcome of an appeal to the Supreme Court of Canada (SCC) on another critical pension ruling from the Court of Appeal that centered on control of pension fund assets. If the Supreme Court overturns the decision in Kerry (Canada) Inc. vs. DCA Employees Pension Committee—also seen as a positive ruling for employers—it may limit the influence of the Burke decision.

In the latest case, the Court of Appeal last week overturned a lower court ruling that Toronto-based retailer Hudson's Bay had to transfer a share of a C$93.9 million surplus to a pension plan created for the Northern Stores Division it sold in 1987. As part of the sale agreement, the division, which became Winnipeg-based North West Co., agreed to employ 1,200 Hudson's Bay workers and to establish a new plan comparable with the Hudson's Bay plan. Hudson's Bay agreed to transfer cash assets equal to the pension liabilities of the transferred employees, but would have no further obligation for their benefits.

The former employees filed a complaint in 1994 asking for a court order that Hudson's Bay transfer a share of the surplus to the new plan or to a trust. A lower court judge concluded that some employees had a reasonable expectation, based on written communications, that part of the surplus would be used to improve their pensions and that the company did not own the surplus. The failure to transfer surplus assets to the new plan constituted a breach of trust, according to the lower court judge.

The Court of Appeal, though, ruled that the company had no obligation to transfer any portion of the surplus under the terms of its pension plan documentation and the absence of legislation mandating such transfers.

In the Burke decision, the Court of Appeal reiterated the plan sponsor was entitled to pay expenses from the fund, a central tenet in the Kerry decision, says Mitch Frazer, chair of the Association of Canadian Pension Management's strategic communications committee. "If Kerry gets overturned, it removes the underpinning of a lot of the argument the Court of Appeal brings forward on the plan expenses issue."

Read the full article here.

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