As a result of previous amendments to the Ontario Pension Benefits Act (the PBA), expected to be effective July 1, 2012, all defined benefit (DB) plan members who satisfy the “rule of 55” will be entitled to grow-in benefits if their employer terminates their employment, unless such termination “is a result of wilful misconduct, disobedience or wilful neglect of duty by the member that is not trivial and has not been condoned by the employer,” or such other exceptions as prescribed by the regulations apply. JSPPs and MEPPs can opt out of this expanded grow-in regime by filing an election with the Superintendent excluding their members from the operation of s. 74 of the PBA.

Draft amendments to Regulation 909 under the PBA (the Draft Regulations) specify that current JSPPs and MEPPs which want to opt out of the grow-in regime must do so by July 1, 2013, and that JSPPs and MEPPs established after the new rules come into force may opt out within one year of their establishment. The Draft Regulations also set out:

• information to be included on the election form (e.g., the name and registration number of the pension plan, the name and contact information of the administrator and the effective date of the election); and
• notice requirements (e.g., for members, employees eligible to become members, unions and advisory committees).

JSPPs and MEPPs may also subsequently rescind an election to opt out. The way the Draft Regulations are currently worded, there can be no subsequent opt out once such rescission has occurred.

FSCO Announcement

In its recent announcement, FSCO provides further details on the information that they want to see included in an election. In particular, in the case of a JSPP, the election must include a confirmation that the decision to opt out of the grow-in benefits regime was made by the employers and the members (or their representatives) of the JSPP, and the election must be signed by an individual authorized to sign the election on behalf of the employers and the members. An election from a MEPP must include a similar confirmation from the plan administrator.

As I noted above, MEPPs and JSPPs can file these election forms now (with an effective date of July 1, 2012). Should the Draft Regulations not come into force on July 1, 2012 or if the Draft Regulations are changed so as to not permit elections to be filed prior to July 1, 2012, however, these previously filed elections will be invalid.

FSCO’s announcement also notes that JSPPs and MEPPs which are registered in other jurisdictions but have Ontario members may also elect to opt out of providing grow-in benefits to their Ontario members.

While much discussion of the Budget has focussed on proposed changes to Old Age Security (OAS) and Guaranteed Income Supplement - gradually increasing the age of eligibility from 65 to 67 starting in April 2023 and allowing for the voluntary deferral of the basic OAS for up to five years starting on July 1, 2013 - the Bill also includes a benefit-related change, which if proclaimed in force will directly affect certain federally-regulated employers (i.e., a "federal work, undertaking or business" and certain other organizations as defined in Part III of the Canada Labour Code) that have long-term disability (LTD) plans in place for their employees. Specifically, the Bill includes amendments to the Canada Labour Code, which would require these federally-regulated employers that provide LTD plans to their employees to insure the plan with an insurer, subject to certain exceptions to be set out in regulations.

Given that the circumstances under which an employer may provide uninsured LTD benefits are yet to be prescribed, the full impact of this provision is not yet clear. However, these federally-regulated employers which provide LTD benefits on an “administrative services only” (pay-as-you-go) basis should be aware that if this Bill passes, they may no longer be permitted to continue such arrangements.

On March 14, 2011 the deceased executed a new will, under which he left his estate to his two adult sons. On March 15, 2011 the deceased signed a change of beneficiary designation with London Life, by which he deleted Ms Orpin and designated his sons as the beneficiaries of the London Life policy. On March 25, 2011 the deceased executed a new will, leaving his estate to Ms Orpin. The will included very broad language regarding his investments, as follows:

III. I HEREBY DESIGNATE my spouse, LOUISE CLARE ORPIN as the sole beneficiary of all moneys that I may have at the date of my death in any registered retirement savings plan, registered retirement income fund, registered pension plan, registered investment fund or any other similar device. I DIRECT my Trustees to make all necessary arrangements to transfer such funds to my spouse as soon as is reasonably practicable following the date of my death.

Mr. Littlechild did not, however, contact London Life to change the beneficiary designation for the London Life policy – his sons remained the designated beneficiaries on file with London Life.

The Court first had to decide whether the investment held by London Life should be characterized as a Registered Retirement Savings Plan or RRSP, in which case the Ontario Succession Law Reform Act would apply to beneficiary designations made in respect of the investment, or whether it should be characterized as a policy of insurance, in which case the Ontario Insurance Act would apply. The Court examined the policy and held that it was “an insurance contract based on the life of the insured”, and hence the Insurance Act applied.

Under the Insurance Act, beneficiary designations may be made or revoked by a “declaration”, which in turn is defined as “an instrument signed by the insured”. An “instrument” includes a will. Therefore beneficiary designations may be made or revoked by will. In order to be effective, the declaration must “identify the contract” or “describe the insurance or insurance fund or part thereof”.

The issue, therefore, was whether the wording in the will, shown above, sufficiently identified the policy held at London Life such that it designated Ms Orpin as the beneficiary of the policy and revoked the designation in favour of Mr. Littlechild’s sons.

The Ontario Superior Court held that while the will did not specifically refer to an “insurance policy”, the words used were sufficient to constitute a declaration for purposes of the Insurance Act.

[T]he testator implicitly revoked the prior designation of the life insurance policy and designated the applicant as the person for whose benefit the insurance money was to be payable.

The Court held that Mr. Littlechild, in using such broad wording in his will, including the phrase “or any other similar device”, intended to include all moneys held in investment vehicles, including the policy at London Life.

• applying to the plan administrator for the “imputed value” or “family law value” of the pension;
• the administrator advising the applicant if an application is incomplete; 
• providing a statement of the imputed value of the pension to the applicant -- there are different versions of these forms depending on the type of plan (e.g., defined benefit or defined contribution) and the status of the member (e.g., active or retired); and
• requesting the plan administrator to transfer a former spouse’s share of a pension or to divide a retired member’s pension, or to advise that there will be no pension division.

One form that appears to be missing is a form for the plan administrator to advise the member and the former spouse of the completion of a pension transfer or division, which could include information such as the amount transferred to the former spouse and the amount of the member’s adjusted pension going forward.

While FSCO has indicated that the forms may be amended between now and the December 31, 2011 deadline, they have also stated they do not expect to make any “material changes” to the forms.

To provide plan administrators and members with further guidance, FSCO has posted instructions and questions and answers related to the forms. FSCO has also indicated that they are in the process of developing additional materials, including questions and answers that will clarify transitional issues.

We’ll discuss these forms further and, more generally, the practical implications of the new pension division regime for plan administrators at an upcoming webinar on Wednesday, November 9, 2011. For more information, please contact Vaughna Mackenzie at seminars@osler.com.

These concerns regarding declining pension coverage appear to be supported most recently by statistics released by the Office the Superintendent of Financial Institutions (OSFI) although, perhaps surprisingly, the decline does not seem to be as precipitous as one might have expected.

The statistics also demonstrate the well-known disparity between the public and private sectors, with RPP coverage for the public sector at 86% in 2009, versus only 25% for the private sector. There is also a large disparity in the type of pension plans offered. While the proportion of pension plans offering defined benefit (DB) coverage in the public sector has been stable between 1999 and 2009 (at 94%), there has been a significant reduction in the proportion of pension plans offering DB coverage in the private sector (from 76% to 56%).

These statistics make it clear that while overall pension coverage is not declining as quickly as some might have thought, DB plans are indeed on the decline, at least in the private sector. Whether the various pension reform initiatives introduced across Canada will serve to slow this trend remains to be seen.

In March of this year, the Ontario government finally released the regulations – in draft form – required to implement this regime. As discussed in my earlier blog post, the draft regulations set out the methodology to be followed by pension plan administrators when calculating the valuation of the member’s pension assets.

In the final form of the regulations, some refinements have been made to the calculation methodology, including:

• guidance for administrators of “hybrid” plans (i.e., plans that include both defined benefit and defined contribution components) – the government had sought feedback on this issue earlier this year in its consultation paper;
• separate methodologies depending upon whether the valuation date falls before or after the earliest date on which the member would have been eligible (or deemed eligible) for an unreduced pension under the plan’s early retirement provisions; and
• procedures to follow where an agreement has not yet been reached with respect to the valuation date.

To provide additional guidance to plan administrators and members, the Financial Services Commission of Ontario (FSCO) has posted questions and answers on its website. Among other things, these Qs&As confirm that there will be no retroactive application of the new rules, and thus court orders and agreements made before January 1, 2012 will continue to be governed by the current “if and when” regime. The Qs&As also emphasize that once in force, all plan administrators must provide these calculations when requested to do so – it is not voluntary.

FSCO has also indicated that it is in the process of developing new marriage breakdown forms, including a form to be completed by spouses requesting a plan administrator to determine the value of pension assets and a form to be completed by the plan administrator showing the value of those assets.

Given the complexity of these new regulations, plan administrators should begin putting in place systems and procedures now so that they are ready to respond to requests in the new year.

Reform of the marriage breakdown provisions in the Ontario Pension Benefits Act (PBA) began with the passing of Bill 133, the Family Statute Law Amendment Act, 2009, on May 14, 2009. These legislative provisions cannot come into force, however, until the regulations needed to support the legislation are passed.

Under the current regime in Ontario, upon marriage breakdown a non-member spouse cannot access any portion of the member’s pension until the member terminates employment or retires. Under the new regime, if the member has not yet retired on the valuation date, the non-member spouse can receive a lump sum payment from the pension plan. If the valuation date is after the member’s retirement, then the non-member spouse can receive a portion of the member’s monthly pension payments.

The formula for determining the preliminary value of an active member’s pension is quite complicated. In essence, the formula takes the average of three calculations of the commuted value of the pension benefit:

1. the commuted value for termination purposes;
2. the commuted value assuming the member’s pension starts at age 65; and
3. the commuted value assuming continued employment to the earliest date the member could receive an unreduced pension, including the value of any bridge benefits.

The three components of the average are assigned different weight depending on how far away the member is from the earliest unreduced retirement date, assuming continued employment. The further the member is from retirement, the more weight is assigned to the commuted value for termination purposes and the less weight is assigned to the other two calculations, etc. The formulae for calculating the commuted value of the benefits of a deferred vested or retired member are much simpler.

The regulations also contain details on the impact on the calculation if the member is not vested or has applied for a withdrawal of benefits based on shortened life expectancy, or if the pension plan has been wound up in whole or in part, or a payment of plan surplus to the member is pending.

Once the preliminary value of the member’s pension has been calculated, then the imputed value is determined as a portion thereof, based on the period of pension membership during the marriage period versus the entire period of pension membership. Interestingly (and perhaps controversially to some), this pro rata method is to be used for calculating the imputed value not only of defined benefits but also of defined contribution benefits.

The draft regulations are not yet in force. When the draft regulations were released, the Ontario government also published a consultation paper seeking comment on several outstanding issues, including a valuation methodology for “hybrid” (combination defined benefit/defined contribution) plans. The period for comments on the draft regulations and the consultation paper has closed. Given that the legislation was first introduced in 2008, it is hoped that final regulations will be passed soon so that the legislation may be brought into force.

8.1 The Parties agree to release any and all interest he or she may have in any pension plan held or paid into by the other;
8.5 The Parties agree to execute any and all documentation required to give effect to clause 8.

Cedric Tower did not subsequently remove his ex-wife as beneficiary of the benefits.

In advancing their claim, the Towers’ sons claimed that the separation agreement contained terms settling all issues between Mr. Tower and his former wife. As a result, they alleged that their mother was not entitled to the benefits at issue and that the benefits were the property of Mr. Tower’s estate.

In denying the sons’ claim, the Court reviewed the relevant provisions of the PSSA and held that Mrs. Tower’s designation as a beneficiary was not revoked by the separation agreement. The Court held that in order to effect a beneficiary revocation under the PSSA, it is necessary to comply with the relevant statutory requirements, which included filing a prescribed form. Relying on the reasoning in a series of life insurance cases, the Court reiterated the following:

A former spouse is entitled to proceeds of a life insurance policy if his or her designation as beneficiary has not changed. This result follows even where there is a separation agreement in which the parties exchange mutual releases and renounce all rights and claims in the other’s estate. General expressions of the sort contained in releases do not deprive a beneficiary of rights under an insurance policy because loss of status as a beneficiary is accomplished only be compliance with the legislation.

[Richardson Estate v. Mew, 2009 ONCA 403 (CanLII)]

The Court also rejected the sons’ argument that the benefits received by Mrs. Tower were subject to a constructive trust for the benefit of the estate, finding that the elements of unjust enrichment were not present. As a result, the Court concluded that Mrs. Tower was entitled to the pension and death benefits at issue.

Plan administrators should be wary of administering changes to pension plan beneficiary designations based on separation agreements containing only broad and general language releasing claims to benefits. Instead, they should ensure that plan members file the proper documentation in accordance with legislative requirements and the plan terms.

The Bill (including amendments recently proposed by the NDP) would amend the Bankruptcy and Insolvency Act (BIA) and Companies’ Creditors Arrangement Act (CCAA) to extend “super priority” status to the entire solvency deficit, and not just those solvency deficit amortization payments that are due but not yet paid.

Extending super-priority status to the entire solvency deficit could place significant additional burdens on the financial capacity of DB plan sponsors, impede their ability to cost-effectively raise capital, adversely affect their ability to invest in Canada’s economy and remain competitive, and, ultimately, impair their ability to fund their pension obligations.

For example, the proposed amendments to the BIA and CCAA could have the following implications:

• the elevation of billions of dollars of potential pension claims ahead of lenders in the priority ladder;
• the revaluation by credit markets of assets available for security and the deduction of higher-priority claims, thus resulting in a significant reduction of available credit; and
• the creation of immediate default situations, based on covenants in existing trust indentures restricting the existence of claims that would have priority over the existing lender.

While the protection of members’ accrued benefits in a restructuring or bankruptcy situation may well be a public policy goal worth pursuing, the unintended consequences of Bill C-501 could include not only the weakening of the financial viability of DB plan sponsors, but possibly the wholesale abandonment of DB plans by corporate Canada.

This is the first of several posts we will be making on the draft legislation. I am going to start by looking at one of the most contentious issues in pension law, the withdrawal of surplus.

The Bill 120 provisions provide that when a plan is fully or partially wound up, surplus may be paid to an employer when it has reached an agreement with the union (or if there is no union with at least two-thirds of the plan members) and with such percentage of former members and other persons entitled to benefits that the Superintendent considers appropriate.

Clearly this amendment was made in response to the Financial Services Commission of Ontario’s (FSCO) controversial position that under Bill 236, in order for an employer surplus withdrawal to proceed, 100% consent of all members and former members of the plan was required – even on partial wind-up – unless the employer could also demonstrate that it is legally entitled to the surplus. (See my September 24, 2010 blog post for further discussion of FSCO’s interpretation.)

What is not clear under Bill 120, however, is whether an employer will be able to withdraw surplus based on entitlement alone with no member consent. Also not clear is whether a surplus withdrawal on partial wind-up requires two-thirds consent from all plan members and former members, or only from those affected by the partial wind-up.

Also included in Bill 120 is a new arbitration provision that is triggered if the Superintendent does not consent to the payment of surplus to the employer, and no surplus sharing agreement has been entered into, within a prescribed period of time after the plan wind-up.

The arbitration provisions introduce an element of discretion on the part of the Superintendent, which one hopes will be exercised with a view to the practical realities of surplus withdrawals. Working out the details of a complex surplus sharing proposal, in some cases involving hundreds or thousands of plan members, can take a significant amount of time, and arbitrations should not be triggered if the parties are working in good faith towards a negotiated settlement.

On September 20, 2010, FSCO released a Q&A to address questions in this regard.
In short, FSCO’s Q&A states that, when making an application to withdraw surplus from a pension plan, an employer is required to do one of two things:

(a) demonstrate entitlement to surplus under the historical terms of the plan and obtain the agreement of 2/3 of the members (or the agreement of the collective bargaining agent) and 2/3 of the former members and others entitled to payments under the pension plan;

or

(b) obtain the consent of all the members, former members and other persons entitled to payments under the pension plan.

Section 8 of the Regulations under the PBA has not yet been amended to reflect the changes to the PBA. Section 8 provides that unless all of the surplus is being paid to the affected members, surplus cannot be paid to the employer on wind-up unless the employer has obtained the agreement of 2/3 of affected members (or the agreement of the collective bargaining agent) and the agreement of 2/3 of the former members (per FSCO policy).

Our main concern arising out of the Q&A posted by FSCO rests with their interpretation of the new provisions as applied to surplus sharing agreements between employers and members. Where an employer is applying to withdraw surplus based on an agreement with the members, FSCO’s position is that 100% member consent is now required. They clearly are not applying the 2/3 consent threshold contained in s. 8 of the Regulations, except as an additional condition to surplus withdrawal based on employer entitlement under (a).

When the new surplus withdrawal rules were introduced, it seemed clear to most industry observers (particularly based on the conclusions in the Arthurs Report) that the intention behind the provisions was to facilitate the sharing of surplus between employers and employees where a surplus sharing agreement could be negotiated. In requiring unanimous member consent (virtually impossible to achieve in most circumstances), the exact opposite is achieved. Rather than facilitating surplus sharing arrangements, FSCO’s interpretation of the surplus withdrawal provisions makes these arrangements far more difficult to achieve, contrary to the clear intention behind the legislation. In effect, FSCO is taking the position that Bill 236 accomplished nothing in the area of surplus withdrawals.

In its recent announcement, FSCO referenced the Government of Ontario’s Technical Backgrounder, stating that the government will “provide more legal certainty and a binding arbitration process for surplus distribution on plan wind up, while continuing to allow payment to an employer where there is entitlement or a surplus-sharing agreement.” In light of this, FSCO has stated that employers may put pending surplus applications on hold until the government provides such “legal certainty”. This is not good news for parties to surplus sharing arrangements who may have already spent years waiting for their deals to be implemented. It is hoped that the government will step in quickly to ensure that its original objectives for pension reform in this area are actually implemented at the regulatory level.

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.

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. 

While not yet in force, sections 23 and 24 of the Bill provide for immediate vesting of pension benefits, as compared to the current 2-year vesting period for post-reform benefits (post-1986 service), and “45 and 10” vesting for pre-reform benefits (pre-1987 service). With immediate vesting, all plan members will be entitled to a deferred pension upon termination of their plan membership.

Plan sponsors should begin considering now how to react to this change.

In certain circumstances, however, where the sponsor’s pension plan does not currently contain a waiting period for new employees to become eligible for pension plan membership, the sponsor may wish to avoid having new employees become immediately eligible for a deferred pension. It can do this by amending its plan to institute a waiting period for pension plan eligibility for all new hires. Bill 236 has not changed the eligibility provisions found in section 31 of the Pension Benefits Act, which continue to permit sponsors to require a waiting period of up to 24 months for full-time and part-time employees, before they become eligible to join the pension plan. 

Ontario began its reform of the pension system late last year with the introduction of Bill 236, which it described as the “first stage” of a multi-step process to reform the province’s occupational pension system. With the tabling of Budget, the government began taking steps towards the next stage by setting out three principles upon which the pension reform will be based: 

• funding should be required for all benefits that a pension plan provides;
• risk and responsibility should be shared among stakeholders; and 
• funding rules should match benefit and governance structures.

• Contribution Holidays: enhancing requirements to ensure greater benefit security and requiring disclosure of contribution holidays to plan members and retirees;
• Benefit Improvements: enhancing requirements for funding when existing benefits are not fully funded and requiring that all benefit improvements be funded more quickly; 
• Defined Benefit (DB) Plan Valuations: setting a uniform funding threshold at which annual actuarial valuations would be required, and limiting the extent to which funding can be based on valuations that exclude the value of certain benefits, employ asset values that significantly depart from market values, or smooth interest rates; 
• Letters of Credit: permitting them to be used to partially satisfy solvency funding requirements; 
• Surplus: clarifying procedures for determining surplus entitlement when a pension plan is wound up; and
• Innovative Plan Designs: encouraging innovative designs by providing a framework for “flexible pension plans,” as permitted under the federal Income Tax Act.

Based on the Budget, it appears that the next round of pension reform will largely focus on the funding of DB plans and, in keeping with the recommendations of the Ontario Expert Commission on Pensions, improving the security of the benefits provided under such plans. While the real impact of such an approach on plan sponsors and administrators will not be fully understood until legislation is introduced later this year, the Ontario government is promising to implement reform in stages so that any cost measures are “mitigated” as appropriate.

The paper proposes several solutions to address problems inherent in processing DB applications:

• Incomplete applications: FSCO will create more standardized applications, and a specific process will be followed by FSCO to address non-compliant or incomplete applications. This is a welcome reform, in that FSCO is proposing that meetings or conference calls would be held to discuss incomplete applications. Currently, incomplete applications are often dealt with through an exchange of written correspondence between FSCO and the applicant, which can continue over months or even years.
• Resolution of prior transactions: FSCO will not delay processing a more recent application if a prior pending transaction does not significantly affect the subsequent application. This is also a welcome reform, since FSCO’s current practice is to delay processing an application if a prior application affecting the same pension plan is pending. If the pending application would have no direct bearing on the subsequent application, it makes sense for FSCO to process the subsequent application without delay.

The proposed solutions outlined by FSCO are a step in the right direction, and if implemented should help DB applications to be processed in a more timely manner. As FSCO correctly points out, however, the only way to truly streamline the regulatory process is through legislative reform. Bill 236 is a first step in this direction (see our December 10, 2009 and January 7, 2010 posts discussing pension reform in Ontario).

FSCO is inviting stakeholders to submit comments on the consultation paper, by February 10, 2010.

In the area of pensions as in so many other aspects of Canadian society, the issue of provincial jurisdiction of course comes into play, the Canadian confederation being what it is. Most registered pension plans in Canada are governed not only by the federal Income Tax Act but also by provincial pension standards legislation (except for pension plans of federally-regulated businesses such as banks and railways). Without corresponding changes to the provincial legislation, particularly in Ontario which is home to the majority of Canadian plans, this proposal from the federal government may not in fact achieve its intended goal.

The fact is that under Ontario’s Pension Benefits Act, if a pension plan is terminated in part or in full, then any surplus assets must be distributed from the plan, once all promised pension benefits have been paid out to the members. Even if the employer is clearly legally entitled to the surplus based on the plan documents, if it wishes to keep any part of the surplus for itself, the Ontario legislation requires that the employer obtain the consent of at least two-thirds of the affected active plan members as well as at least two-thirds of the affected “former members”, namely the pensioners. Practically speaking, such member consents are difficult if not impossible to obtain without the employer offering to share a portion of the surplus with the members.

Faced with such a scenario, many employers may be reluctant to continue contributing to a pension plan that is already in surplus, even though it may provide the members with greater security in uncertain economic times, if the employer knows that it will have to give away part of that surplus if the pension plan is ever terminated in whole or in part.

Minister Flaherty’s parliamentary secretary was absolutely correct to state that the government was looking to do what it could, within its jurisdiction. Without more from the Ontario government, however, very few Ontario employers may take advantage of the revised tax rules, if the proposed changes are made to the federal Income Tax Act.

• No statutory or common law rule requires a plan sponsor to pay administrative expenses; rather, the plan/trust documents will be determinative.
• Silence in the documents does not imply that the sponsor must pay plan expenses. So long as nothing in the documents requires the employer to pay expenses, “reasonable” and “bona fide” expenses can be paid from the fund.
• “Exclusive benefit” language in a pension plan does not prohibit incidental benefits from accruing to others, including the pension plan sponsor.
• The payment of plan expenses ensures the plan can continue; it is therefore for the “exclusive benefit” of members that the expenses be paid from the fund.
• Expenses must be considered on a case-by-case basis in order to determine whether they are appropriately paid from the pension fund, the implication being that expenses incurred more for the benefit of the sponsor should not be paid from the fund.
• Whether the services being paid for out of the pension fund are provided by third parties or by the sponsor is “immaterial” and “artificial”, if the payment of expenses out of the fund is permitted and the expenses are reasonable and legitimate.
• There is no need for the contribution provision in the plan text to explicitly mention an “actuary” in order to permit actuarial discretion (i.e., taking into account the plan’s surplus position) when determining the required funding.
• There is no reason why a single pension plan can’t have DB and DC components whose members are beneficiaries of the same trust.Members have no right to require surplus funding; while a plan is ongoing they have no vested interest in the actuarial surplus which would prohibit the use of surplus to pay expenses or to take contribution holidays.

Kerry left unanswered one important question: if a pension plan funded through a trust requires the employer to pay the plan’s administrative expenses, can it be amended to permit the expenses to be paid from the fund? If so, is a broad power of amendment sufficient, or must the employer have reserved the power to revoke the trust at the time the trust was established? This issue will have to be decided in a future case.