Alice in Pensionland

The Manitoba Telecom case arose out of the provincial government’s 1996 privatization of the former Manitoba Telephone System. As part of the privatization process, MTS employees and retirees were transferred from a Manitoba civil service superannuation plan to a registered pension plan sponsored and administered by the new employer corporation.

It would seem from the painfully-detailed recital of facts in the Court’s reasons for judgement that the privatization initiative triggered much jostling for position among the stakeholders in the pension transition process, including unions, retirees, and management for the soon-to-be-privatized enterprise. As the effective date of the privatization approached, the provincial government apparently exerted considerable pressure on the contending stakeholders in a series of late night meetings and imposed an agreement among them.

Key to the government’s intervention was its last-minute insertion in the Manitoba legislation implementing the privatization of provisions stating that the new corporation would establish a pension plan providing “for benefits…equivalent in value” to those under the civil service superannuation plan to which employees had previously belonged, and mandating the Provincial Auditor to appoint an independent actuary to “determine whether the benefits under the proposed plan are equivalent in value”.
Much of the Court’s analysis in Manitoba Telecom was devoted to an examination of the process by which the Provincial Auditor and his designated actuary subsequently went about making this statutorily-imposed determination. In the eyes of the judge, who referred repeatedly to the “understandable” concerns of the retirees without ever articulating equivalent empathy for the concerns of the employer, that process was found to be seriously deficient. Accordingly, he set aside the actuary’s opinion that the benefits of the new plan were indeed equivalent to those of the prior plan and ordered the defendants to pay $43 million plus interest since 1997.

If one accepts the Court’s description of the Provincial Auditor’s and actuary’s actions at face value, procedural deficiencies there may have been. With respect, however, the Court’s consequential interpretation of the Manitoba statutory references to “benefits” and “equivalent in value” flies directly in the face of Canadian pension legislation and case law.

One would have thought that the statutory reference to “benefits” should be understood as a reference to the defined benefits set forth in the old and new pension plans’ respective benefit formulas. This would have entailed a straightforward comparison of the plans’ basic retirement benefits, any early retirement subsidies, surviving spouses’ death benefits, and the like, an exercise which actuaries are often called upon to perform.

However, the Court noted that there was in fact no real disagreement about the equivalence of the new defined benefits with the old. Rather, the Court focused tremendous attention on certain other distinctions between the plans, namely the respective provisions on funding, surplus entitlement and member participation in plan governance. In the Court’s eyes, surplus and governance were also “benefits” whose equivalence had to be considered.

With all due respect, it is mystifying as to how surplus or governance can be construed as pension plan “benefits”. To begin with, there exists considerable case law holding that rights to surplus do not constitute “benefits” within the meaning of Canadian pension legislation (see, e.g., Baxter v. National Steel Car, Lennon v. Rockwell).

Moreover, one would have thought that the reference in the legislation to the term “value” and the designation of an actuary to determine the requisite equivalence in value would have made crystal-clear that the legislator’s intent was to order a relatively simple quantitative comparison, not to engage in a qualitative assessment of the plans’ respective legal features which, at least in the case of governance, are not even capable of reduction to any particular numerical value. This is especially so given that in the past, Canadian courts have not been shy to rap actuaries on the knuckles when such actuaries were found to be engaging in legal, rather than actuarial, analysis (see, for instance, the Ontario Superior Court’s 2003 Transamerica Life decision).

The Court’s conclusions in Manitoba Telecom seem to have been informed in good measure by its stated belief that “pension plans are sacrosanct”. This is a very admirable sentiment. Unfortunately, though, it has led in this case to a judicial stretching of the term “benefits” beyond all recognition.

Humpty Dumpty might well be proud of such result. Others, who are more concerned with the evolution of Canadian pension law, may hope that the pending appeal of this decision to the Manitoba Court of Appeal will ultimately lead to a different resolution.