There were very few pension and benefits cases that had actually been argued before a court. Pension and benefits law at that time was a subset of trust law, and most of its practitioners probably acted for trade unions in the establishment of multi-employer pension and benefits plans or worked for trust or insurance companies.
The role of the legislation and common law is far greater in 2007 than it was in 1977. There needed to be more of a balance between the rights of plan sponsors and the rights of plan members. In 1977, sponsors had very little in the way of legislative supervision or legal limits on their activities.
Restructuring of industry in the early 1980s led to a public outcry when employers closed their doors and their employees and retirees discovered that their pension plans were underfunded. Faced with this crisis, government responded by adopting more stringent funding rules and by giving plan members and their bargaining agents the right to obtain information about their pension plan. In Ontario, this crisis also led to the establishment of the PBGF to protect members in the event that their plan was wound up and was not fully funded.
Similarly, grow-in rules were also a response to the restructuring of Ontario’s industrial economy in the early ’80s. Under the old rules, long-service employees found themselves facing the double whammy of losing their jobs and receiving a tiny pension benefit because they had not met the plan’s age and service requirements for a full pension at the time of the plant closure.
The growth of pension and benefits case law has the same origin. In order to protect their interests, members had to resort to the courts. The ownership of pension surpluses was fought over because the interest of members had not been taken into account when surpluses were being either distributed or used. Similarly, in the area of non-pension benefits, plan members became far more assertive in their efforts to protect their interests.
ROOM FOR CHANGE
The regulatory model needs to be changed. As things stand now the legislation is set up in a way that it sets out the rules that must be followed by both sponsors and plan members. While this approach has greatly improved the situation, it needs to move forward one more step.
In particular, the parties to the pension promise must be given the ability to achieve their own solutions within the context of the overall legislative framework. If parties properly advised reach a solution to an issue, regulatory authorities should be given the ability to approve such solutions. Instead of being all things to all people, the role of the regulator would be more clearly defined as being one of a referee or an honest broker.
Legislation is too often aimed at fighting the last war. As a result, there is little ability for the legislation to evolve in concert with the changing pension environment. Under the current model, legislation becomes obsolete and then increasingly irrelevant. Allowing the parties to resolve their issues within an appropriate regulatory framework will help to ameliorate this problem.
Hugh O’Reilly heads the pension and benefits practice group at Cavalluzzo Hayes Shilton McIntyre & Cornish in Toronto. horeilly@cavalluzzo.com
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