Arbitrator Orders Unlocateable Plan Member Rights Preserved on Plan Wind Up
When the Toronto Dress and Sportswear Industry Retirement Fund was wound up in April of 1996, the plan was severely underfunded. Plan assets were only sufficient to fund about 41% of plan liabilities. As the wind up proceeded, extensive efforts were made to contact all members and former members. In the end, however, there remained 249 missing, but identifiable members and approximately $1 million in undistributed plan assets relating to their 41% share of pension liabilities. The plan Trustees wanted to complete the wind up distributions, but they could not agree on how the missing member assets should be treated.
The union Trustees felt the assets should be set aside and continued to be held for the benefit of the missing members if and when they were located. The Trustees appointed by the Toronto Dress and Sportswear Manufacturers Guild Inc. disagreed, and wanted the funds distributed as a bonus to current employees. The Trustees could not reach an agreement and the union rejected the Guild’s attempts to reach a negotiated solution, so the matter was submitted to an arbitrator under the terms of the trust agreement and the collective bargaining agreement.
The union referred the arbitrator to a similar case decided under federal pension legislation in 2009 by the Ontario Superior Court (Hawker Siddley Canada Inc. (Re) [2009] O.J. No. 5795), where residual funds relating to missing persons had been ordered paid into court, but requested the arbitrator in this case order that the left-over funds be transferred (with regulatory approval) to an ongoing successor pension plan and continue to be held for the unlocated group.
The arbitrator noted FSCO’s position that funds owing to one member cannot be paid to another member and found, based on “general principles of trust law”, that the undistributed plan assets should remain in trust for the missing members. The arbitrator further noted the need for regulatory approval and that, while FSCO may be agreeable to a locked-in transfer to another registered retirement vehicle or pension plan, FSCO had communicated its unwillingness to accept any guarantee by either an employer or a union to pay benefits if the funds were released from the trust.
In the absence of any clear directions under the Ontario Pension Benefits Act on how to deal with missing members on a plan wind up, and to permit completion of the wind up process, the arbitrator ordered that an application be brought to seek FSCO’s approval of the transfer of the remaining plan assets to the successor plan, “with the intent that the assets be held and accounted for separately, and maintained in the event any of the missing but identifiable members are located or come forward.”
This case underscores a common dilemma faced by pension plan administrators when completing plan wind ups – difficulties arise when outstanding basic benefit and/or surplus entitlements are owed to missing plan members or their beneficiaries.
Interestingly, in the 2011 Ontario Budget, the government announced that it intends to “explore options to handle the benefits of unlocated members of plans that are wound up, in whole or in part, so that full and partial wind-ups may be completed.” Perhaps, the Ontario government will consider making amendments similar to those recently passed by the federal government (which will authorize the federal Minister of Finance to designate an entity for the purposes of receiving, holding and disbursing the pension benefit credit of any person who cannot be located.) In any event, however the issue is addressed, the Toronto Dress and Sportswear case highlights the need for further pension reform in this area.
