Supreme Court asked to clarify Ontario pension law

Appeal in a 2007 decision of the Ontario Court of Appeal to Court to determine the appropriate conduct of employers managing employee pension funds

Ottawa (5 February 2008) – The Supreme Court of Canada has granted leave to appeal in a 2007 decision of the Ontario Court of Appeal, a case which asks the Court to determine the appropriate conduct of employers managing employee pension funds. Specifically the Court is being asked to provide guidance on whether pension plan expenses can be paid for by a pension fund and when surplus pension funds can be used to satisfy a company’s contribution obligations.

The case, Elaine Nolan, et al. v. Kerry (Canada) Inc. et al., will be watched closely by unions and employers alike.
The origins of the case go back to 1954, when the Canadian Doughnut Company Limited established a pension plan for its employees. The pension plan set up a trust, funded through company and employee contributions. It continues to operate and is governed by the Pension Benefits Act.

The company now operates under the name Kerry (Canada) Inc. Over the years the pension fund operated at a surplus and plan members always have received their full pension benefits.

Beginning in 1985 and up until 2001, the company took contribution holidays of about $1.5 million. In 2000 the company stopped covering the pension plan’s expenses, opting to pay for the administration of the pension plan out of the plan’s surplus funds.

In that year former employees of Kerry Inc. asked Ontario’s Superintendent of Financial Services to investigate irregularities in the administration of the pension plan. After the investigation, the Superintendent issued two orders. The first order stated that Kerry Inc. was required to reimburse the fund for expenses paid from the fund after 1985. The second stated that Kerry Inc. was not responsible to pay the amounts that had been taken away from the fund through the contribution holidays.

Kerry Inc. sought a hearing at the Ontario Financial Services Tribunal on the first order and Plan members also requested a hearing regarding the contribution holidays taken by the employer. The matters were heard separately, but both hearings resulted in favour of Kerry Inc.’s position.

Plan members appealed these decisions to the Ontario Divisional Court, where the Divisional Court overturned the Tribunal’s decisions on both matters. Kerry Inc. appealed the Divisional Court’s decision to the Ontario Court of Appeal. The Court of Appeal allowed Kerry Inc.’s appeal, restored the decisions of the Tribunal and set aside the judgment of the Divisional Court.

This case will be watched very closely by employee groups and the business community. The eventual outcome will have implications which reach much further than this particular case, such as other employers that have been conducting similar practices of using pension funds to pay for the administration of a pension plan.

The case gets to the Supreme Court at the same time that Ontario is conducting an in-depth review of its pension legislation. The Pension Benefits Act has not been substantially updated for over twenty years. As a result, the Ontario government has set up the Expert Commission on Pensions.

This commission, chaired by noted academic and labour law expert Harry Arthurs. Among other things, the Commission has a mandate to examine the legislation governing the funding of defined benefit pension plans in Ontario, the rules relating to pension deficits and surpluses, and other issues relating to the security, viability and sustainability of the pension system in Ontario

The Commission is scheduled to report back to the government this summer. Its findings will likely lead to amendment to the Ontario Pensions Benefit Act.

 

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