The federal government’s recent decision to transfer a $1.9 billion surplus from the Public Service Pension Plan to its general revenue is within its purview, says Mitch Frazer, a pension lawyer and managing partner at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo.
“[This situation is] slightly different because this plan is made by a statute and, as a result, it doesn’t have the same surplus withdrawal rules that a company pension plan would have. If this was a private company, and the plan was set up [prior to] 1990, there would be some tax issues which wouldn’t allow you to take the money out of the trust without having some sort of agreement.”
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In a press release, the Professional Institute of the Public Service of Canada said it strongly opposes the government’s decision, adding the move ignores workers’ equal contributions to the plan at a time when many face layoff notices.
In any other scenario where it wasn’t a government plan, Frazer notes both sides would have to take into consideration any historical documents and promises made. Typically, the company would put some money into general revenue and some would go to employees — or retirees or beneficiaries, whoever is entitled to it.
“The odd thing here is that the employees contribute to this plan, so one could argue that maybe there should be some sort of surplus sharing, but it’s within the government’s ability to transfer the entire surplus to general revenue.”
Given that the union and the government are already at odds, removing a surplus certainly doesn’t help negotiations, adds Frazer. “Traditionally, the employer would regard surplus as their entitlement because they’re sponsoring the plan and the employees get their pension benefit, and employees would regard it as deferred wages — something they’ve earned — so there’s usually some form of negotiation [to come to] a reasonable decision.”
While the union could argue to include some sort of surplus restrictions in their collective agreements, he says the main concern is the pension benefit that’s promised gets delivered to employees.
The PIPSC is currently calling on the government to pause this transfer and engage in meaningful consultation with unions, saying any solution must reflect employees’ 50 per cent contribution to the plan.
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