Kerry’s legacy

Panelists Kathryn Bush, a partner with Blake, Cassels & Graydon LLP, and Marcel Theroux, a national partner with Mercer Canada, dissected the court’s decision for the audience.

Standard of review
Bush explained that the Supreme Court of Canada (SCC) found that the appropriate standard of review for Financial Services Tribunal decisions relating to the issues of plan expenses, contribution holidays and cost was reasonableness. “This is the same standard that was found by the Ontario court of appeal, except that the Ontario court of appeal required a higher correctness standard with respect to the issue of costs,” she said.

Further, granting of a deferential standard of review to the Tribunal’s decision may be seen as a change by the SCC from its earlier decision in Monsanto [2004].

“The important point going forward,” she explained, “is that given the deference accorded to the Tribunal’s decisions in this case, hearings before the Tribunal will take on heightened importance.”

Pension plan expenses
Bush noted that the SCC and the Ontario Court of Appeal agreed there is nothing in legislation or common law that imposes a requirement on an employer to pay pension plan expenses. The SCC also held that—in the case of the Kerry pension plan—plan administration expenses could be paid from the pension fund because amendments allowing such payments were not inconsistent with the prior plan or its trust documentation.

She says the main point for plan sponsors in this decision is threefold: 1. Payment of expenses is necessary for a plan’s continued existence and, therefore, is for the exclusive benefit of employees and beneficiaries. 2. Even if the pension plan documentation is silent on the issue of expenses, it still does not create an obligation on the plan sponsor to pay expenses. 3. So long as there are no stated restrictions on who pays expenses in the documents or legislation, the plan sponsor has the right to charge reasonable administrative expenses to the pension fund.

Costs
The Supreme Court raised two issues with respect to costs, said Bush: • whether the Tribunal had authority to award costs to the committee out of the fund; and • when a court should exercise its discretion to award costs payable out of the fund.

Ultimately, costs were found to be payable by the committee in favour of the company, Bush explained, which will, we hope, affect the willingness of employee groups to launch these types of cases.

DB contribution holidays
Theroux explained that the SCC reiterated an earlier decision that entitlement of defined benefit (DB) trust beneficiaries is not affected by contribution holidays. The SCC also suggested that DB contribution holidays would not be allowed if the plan funding formula eliminated actuarial discretion or otherwise fixed annual contributions.

The main point, according to Theroux, is that the SCC confirmed that DB contribution holidays are allowed when funding requirements are determined by actuarial practice, unless other wording in the plan text or legislation prohibits such holidays.

On defined contribution (DC) holidays, including retroactive amendments, Theroux said that the majority of the SCC found that the 2000 amendments to the plan, which introduced the DC component, evinced an intention that there be a single plan. The court held that it was reasonable for the Tribunal to conclude that a retroactive amendment could make the DC participants beneficiaries of the same trust as the DB participants. Finally, no government regulation prohibits any retroactive amendments, single plan and trust, and DC contribution holidays.

What it means for plan sponsors
The SCC found that the plan in Kerry was intended to be ongoing and to cover all employees of the company, as demonstrated in the plan documents, explained Theroux. It is not inconsistent with the plan to designate the DC members as beneficiaries of the original trust.

Also, the majority addressed dissent’s argument that a DC contribution holiday would lessen the security of the DB component’s participants by noting that, absent contrary indication in legislation, DB members have no right to require surplus funding in order to increase their security.

Implications of the decision

Is the decision good news for plan sponsors?
Yes, said Bush, but it doesn’t mean all employers and administrators can necessarily start paying plan expenses from the fund.

For DB contribution holidays, a generally favourable climate has been maintained. DC contribution holidays have been given court approval, but generally only in the context of one plan for the plan sponsor’s employees and not necessarily for the merger of plans of different employers.

“The SCC made it clear that a plan’s current and historical documentation is very important in determining whether an employer is specifically prohibited from using the pension funds for expenses,” she said. “If plan documents state the employer is responsible for expenses, the employer cannot go against that promise unless it makes an amendment, which requires careful analysis. Documentation is similarly crucial in determining whether retroactive amendments or DC contribution holidays, or both, are permitted.”