The rule in Saunders v. Vautier is that a trust can be collapsed or changed “if all beneficiaries of the trust, being of full legal capacity, consent.” The rule is typically applied in small family or testamentary trusts in cases where all the beneficiaries agree to change the terms of the trust. In Buschau, the members of a closed plan sought to use this rule to terminate the trust fund and trigger a distribution of surplus.
Employers generally retain the right to terminate their plans, subject to any commitments they may make in collective bargaining. As well, pension regulators, in certain cases, have authority to terminate or wind up pension plans. However, members and former members typically have no rights to initiate a winding-up of their plan.
All seven members of the Supreme Court hearing the case determined that Saunders v. Vautier did not generally apply to pension trusts. In general, the judges agreed that the federal Pension Benefits Standards Act(“PBSA”) governed the circumstances under which pension plans could be terminated. The Court recognized that Saunders v. Vautier was established under very different circumstances for very different types of trust arrangements. Contemporary pension trusts, they agreed, are regulated and supervised by authorities and perform a social function that is generally distinct from the sorts of trusts contemplated by the nineteenth century rule in Saunders v. Vautier.
The interesting difference between the majority(four judges)and the minority(three judges)of the Court is in their different views as to whether the Office of Superintendent of Financial Institutions could order the termination of a plan in the circumstances of this case. The majority held that the plan members should have applied to the Superintendent to wind up the plan. The minority held that the Superintendent could only order a wind-up after the cessation of contributions, where the solvency of the plan was in jeopardy. Since the Premier Plan was in surplus, and the employer had ceased to make further contributions because it was taking a contribution holiday, the minority majority held that the Superintendent would have no authority to order the wind-up of the plan.
However, this interpretation, which lays particular stress on a phrase taken from the minority judgment, takes both the majority and minority judgments out of context. In general, the Buschau case supports the conclusion that plan wind-ups are there to preserve either the employer, or the pension regulator. In the latter case, circumstances under which the pension regulator can order plan wind-ups are defined by statute, but include cases in which employers have ceased making contributions to a plan, even if the plan is fully funded and the reason for this cessation of contributions is that the employer is taking a contribution holiday. In this regard, the Court majority stressed that the regulator must have regard for the “remedial purpose” of the PBSA, which is generally taken to mean the protection of members within the context of the regulatory arrangement. The majority made clear that deliberate delay in performing a wind-up, simply to thwart a surplus distribution, would likely run afoul of the PBSA protections and justify the Superintendent in ordering a wind-up.
Accordingly, while the majority decision in Buschau deprives members of the right to terminate a pension plan and trust under Saunders v. Vautier, it provides an alternative route for members to press for a wind-up through regulatory action.
Murray Gold is a partner with Koskie Minsky LLP in Toronto. mgold@koskieminsky.com
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