Ontario's New Surplus Sharing Rules: In Force but Questions Linger
As indicated in a previous post, among the very few aspects of Bill 236, the Pension Benefits Amendment Act, 2010 to come into force on royal assent were the provisions addressing surplus withdrawal on full or partial wind-up. Some issues of concern regarding these provisions have already arisen, as they have been subject to competing interpretations.
Under the old Ontario Pension Benefits Act rules for employer surplus withdrawals on plan wind-up, even if an employer obtained the necessary number of affected plan member consents, it nevertheless had to demonstrate legal entitlement to surplus in order for a surplus sharing arrangement to receive regulatory approval and proceed to distribution. Under Ontario’s new wind-up surplus rules, the employer has the option of sharing surplus with members after obtaining the necessary number of affected member consents, or demonstrating legal entitlement to surplus without member consent and potentially withdrawing all of the surplus for itself. Employers no longer have to do both (that is, prove entitlement and obtain member consents). On full wind-up, for example, section 79(3) of the PBA is the applicable provision:
(3) Subject to section 89, the Superintendent shall not consent to payment of surplus to an employer out of a pension plan that is being wound up in whole unless all of the criteria set out in subsection (3.2) are satisfied and,
(a) the pension plan provides for payment of surplus to the employer on the wind up of the pension plan; or
(b) a written agreement of the employer and the members, former members and other persons entitled to payments on the date of the wind up is made in accordance with such conditions as may be prescribed and authorizes payment of surplus to the employer.
As is often the case in the midst of pension reform, however, the path ahead is not yet clear. Two potential issues have arisen that may delay full realization of the intended results of the legislation.
First of all, section 8 of the Regulations under the PBA has not yet been amended to reflect the Bill 236 changes. Under that section, unless 100% of the surplus is being paid to the affected members, no surplus can be paid from the pension plan to the employer on plan wind up unless member consent thresholds have been satisfied.
The expectation was that once the above Bill 236 surplus-related changes were made to the PBA, section 8 of the Regulations would be quickly brought into line. Until that is done, or until an adjudicator determines that the PBA amendments must be read in such a way that section 8 has no application where employer entitlement is being demonstrated, the current effectiveness of this change to the PBA may be in some doubt. The intent of Bill 236 is certainly clear: the member consent regulations should have no application where the employer is seeking to withdraw surplus based solely on legal entitlement.
The second area of concern relates to the manner in which the PBA amendments under Bill 236 were drafted. On a plain reading, the new wording allows the Superintendent to consent to a payment of surplus to an employer based purely on the satisfaction of member consent thresholds without having to consider the issue of employer surplus entitlement as a matter of trust law or otherwise.
We have heard that some in the industry may not agree with this interpretation of the Bill 236 PBA amendments and feel that even where the necessary number of member consents have been obtained, the Superintendent can nevertheless refuse to consent to the agreed surplus distribution if the historical provisions of the pension trust do not clearly permit employer surplus payments. This interpretation (with which we disagree) would effectively neuter the Bill 236 changes to the PBA, is contrary to the intention behind the legislation, and would result in an unacceptable and nonsensical reversion to the situation that existed prior to Bill 236 that both employer and member groups agreed should be changed.
