Supreme Court rules employers need not transfer pension surplus to successor plans

Decision fails to set an absolute precedent as the court rules future legal actions of this kind should be treated on a case-by-case basis.

Ottawa (12 October 2010) – The Supreme Court of Canada (SCC) ruled last week that that a share of pension surplus in a defined benefit (DB) plan need not necessarily be transferred to a successor plan established for transferred employees on the sale of a division of a company.

The decision, however, failed to set an absolute precedent because the court said future legal actions of this kind should be treated on a case-by-case basis by the courts, depending on the wording of the pension plan terms.

The case, Burke v. Hudson’s Bay Company (HBC), arose when HBC sold its Northern Stores division in 1987 to the North West Company. As part of the deal, HBC transferred assets out of its defined benefit pension plan equal to the accrued defined benefits of the employees affected by the deal, to a new pension plan established for those employees by their new employer. At the time, the HBC pension plan stood in surplus.

The transferred employees went to court to argue that they were entitled to a pro rata share of the surplus in the HBC plan. Additionally, the transferred plan members sought an order requiring HBC to repay to the fund amounts that had been used to pay plan expenses from 1982 to 1986.

At the Ontario Court of Appeal level, the court ruled in 2008 that based on a review of the plan documents, the members were not entitled to the surplus, and therefore the failure to transfer a portion of the surplus was not a breach of trust. On the plan expenses issue the court of Appeal determined that since the plan text had been silent on plan expenses from inception, HBC had always been permitted to pay plan administration expenses from the plan fund.

The transferred employees appealed the decision on both the surplus transfer and the plan expenses issues to the SSC, which dismissed the appeal on both counts.

Supreme Court of Canada Decision

On the transfer of the surplus issue, the SCC stated that it was necessary to examine all previous and current HBC plan documents to determine whether the transferred employees had an “equitable interest” in the plan’s surplus. Noting that the “exclusive benefit” language in the HBC trust agreement was restricted to promised benefits and did not give employees entitlement to surplus, the SCC concluded that no such equitable interest in surplus existed.

On the plan expenses issue, the SCC followed its ruling Nolan v. Kerry (Canada) Inc., where it held that there is no statutory or common law authority that compels an employer to pay the expenses of a pension plan and as such, the obligations of the employer will be determined by the plan text and the trust documents. The fact that there was no reference in the documents on the treatment of expenses does not constitute a ban and therefore HBC could charge plan administration expenses to the pension fund.

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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

More information:

Supreme Court decision, Burke v. Hudson’s Bay Company (HBC)

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