The Supreme Court of Canada recently released its decision in Nolan v. Kerry (Canada) Inc,1 clarifying five areas of pension law that have been issues of some controversy over the past two decades. Nolan v. Kerry was, at its heart, a dispute about the funding and administration of a pension plan. The employer who administered the pension plan made a number of changes to its administration of the pension plan, including: requiring the pension fund to pay for actuarial, management and audit fees; taking a contribution holiday paid for by an actuarial surplus; creating a defined contribution component to the pension plan; and then paying the employer’s share of contributions by using the actuarial surplus available in the defined benefit portion of the plan.
After the employer introduced amendments in 2000 permitting it to do these things, the Employees Pension Committee requested the Ontario Superintendent of Financial Services to deny registration of the 2000 amendments, order the company to reimburse the plan for all expenses paid out of the plan, and then wind up the pension plan. The employees relied primarily upon the original 1954 Trust Agreement, which stated that the pension fund was for "the exclusive benefit" of the beneficiaries.
The Superintendent granted relief concerning the plan expenses, but declined to refuse the amendments or wind up the pension plan. The case eventually made its way from the Financial Services Tribunal through the Ontario court system up to the Supreme Court of Canada, who upheld the company’s decision on all five issues:
Standard of Review of the Financial Services Tribunal: Reasonableness, not correctness.
Plan Expenses: The 1958 Trust Agreement obligated the employer to pay “trustee fees” and “trustee expenses”, but did not refer to any other costs arising from the plan’s administration. Therefore, the employer did not have to pay plan expenses. Further, the “exclusive benefit” provision in the trust was not infringed, as plan expenses benefited the employees. The majority of the Court actually stated: “nor can the term ‘exclusive benefit’ be construed to mean that no one but the employees can benefit from a use of the trust funds.”
DB Contribution Holidays: In general, contribution holidays are permitted where plan documents “provide that funding requirements will be determined by actuarial practice.” The plan wording in this case was for company contributions “not less than those certified by the Actuary as necessary to provide the retirement income accruing to members during the current year.”
DC Contribution Holidays: The employer could use the DB surplus to cover its share of contributions to the DC plan. The Supreme Court of Canada ruled that the employer could create one plan with two benefits (i.e. one trust and one plan, but DB or DC benefits provided out of the same plan). It was not unreasonable for the Tribunal to hold that DC members could be designated as beneficiaries under the trust because they were employees. Justice LeBel authored a strongly-worded dissent on this issue. The majority’s decision rests in large part on the absence of a prohibition against the impugned activity. Pension plans are private arrangements, and therefore absent express prohibitions in statute or under the terms of the trust, employers can act according to their discretion.
- Costs: Costs were awarded against the employees. The Court recognized that in estate litigation costs are often payable out of the trust unless a beneficiary makes a claim which is adverse to other beneficiaries of the trust. However, the SCC decided that pension litigation is different (particularly as the employer has an ongoing obligation to contribute to the pension fund, unlike normal trusts), and that the normal rule in pension litigation will be to “allow a court to award its costs out of the fund where there is a legitimate uncertainty as to how to properly administer the trust and where the dispute is not adversarial.” This case was ultimately adversarial because it was about the propriety of the Company’s actions, and because the employees sought to have funds placed into the Fund to the benefit of DB members only.
12009 SCC 39.