Sets precedent likely to undermine pension plans across the country.
Ottawa (9 Aug. 2009) - A new pension ruling by the Supreme Court of Canada is bad news for workers across the country.
By a margin of 5-2, the country's top court has ruled that Kerry Canada, a Woodstock, Ont., food products company, acted within its legal rights when it moved surplus cash from a defined-benefit pension plan to a newer defined-contribution plan.
The court also found that the company acted legally in paying itself "reasonable" administration costs from pension money.
The verdict is a setback for everyone who has been fighting for adequate pensions for future generations of Canadians. It is bound to have major implications for other companies eager to take similar steps to the detriment of employees covered by their plans.
The Canadian Labour Congress (CLC) says the decision adds urgency to a call by Canada's premiers at their summer meeting last week in Regina for a national summit to deal with the future of pensions in Canada.
Ontario Premier Dalton McGuinty cited a recent study showing that, by 2030, two-thirds of all Canadians will not have enough retirement income to pay for necessary living expenses.
The Kerry case dates to 1985 when the company began paying administrative costs from the pension plan and also awarded itself a later "holiday" on paying company contributions to the plan.
In 2000, the company closed its defined-benefit plan for new employees, enrolling them instead in a less generous and more uncertain defined-contribution plan.
The employees fought the changes in court but lost in June 2007 when the Ontario Court of Appeal ruled that an employer could stop paying pension plan expenses (and take the money from the pension plan itself) if the plan itself did not specifically prevent it.
At the same time, the Ontario court ruled that Kerry would not have to pay back money it took from the fund while enjoying its contribution holiday.
Last week the Supreme Court agreed, saying there was nothing in the plan preventing the company from avoiding making payments if the fund was in surplus, and nothing stopping it from transferring funds from one part of the plan to the other.
"The plan documents do not preclude combining the two components in one plan and nothing in these documents or trust law prevents the use of the actuarial surplus for the (define contribution) contribution holidays," wrote Justice Marshall Rothstein.
The decision also said Kerry was not obligated to pay pension expenses out of pocket because those expenses were incurred for the benefit of pension plan members.
"The payment of plan expenses is necessary to ensure the plan's continued integrity and existence, and the existence of the plan is a benefit to the employees," Rothstein wrote.
"It is therefore to the exclusive benefit of the employees that expenses for the continued existence of the plan are paid out of the fund."
The National Union of Public and General Employees (NUPGE) is one of Canada's largest labour organizations with over 340,000 members. Our mission is to improve the lives of working families and to build a stronger Canada by ensuring our common wealth is used for the common good. NUPGE