• they want to cut benefit funding and administration costs, as market volatility and low interest rates drive up solvency deficits and make planning more difficult;
• to achieve better planning and budgeting by making pension liabilities more predictable for purposes of financial reporting;
• changes in the accounting rules;
• to reduce regulatory complexity and limit the risks associated with their current DB plans; and
• to align local business decisions with those of international affiliates or parent corporations.

In this four part series I will examine these hurdles as they relate to the following ways in which a DB plan can be “restructured”: 

• plan termination/wind-up;
• closing the DB portion of the plan to new entrants and establishing a defined contribution plan for new hires; 
• implementing a soft ‘freeze’ where no more future accruals are permitted under the DB plan, but earnings increases, as they pertain to previously accrued pension benefits, are recognized; 
• implementing a hard ‘freeze’ where everything is closed off and all future service and earnings are transferred to the new plan/component; and 
• amending the plan to reduce/eliminate ancillary benefits provided under the existing plan terms.

Regardless of the way in which a company pension plan is restructured, it is key for employers to communicate these changes to their pension plans clearly and in a way in which their membership can understand.

Stay tuned for Part II of the plan restructuring series, which will address the specific issues relating to the first option - plan terminations/wind-ups.

• documents to be filed;
• plan amendment requirements (depending on whether defined benefits are being commuted or preserved); 
• funding agreement requirements if accrued defined benefits are being maintained in a separate fund;
• issues to be addressed in the actuarial valuation; 
• annuity purchase options;
• treatment of surplus (if any); 
• dealing with underfunded plans; 
• treatment of pensioners and deferred members; 
• employee excess contributions (for contributory plans); and 
• disclosure to members.

Similar to the Financial Services Commission of Ontario’s Policy C200-101 “Conversion of a Plan from Defined Benefit to Defined Contribution” (FSCO Policy), the Manitoba Policy Bulletin is quite detailed.

Interestingly though, unlike the FSCO Policy, the Manitoba Policy Bulletin does not require an administrator to give all members the option of preserving their accrued defined benefits. Rather, the Manitoba Policy Bulletin provides that only those plan members who are eligible for early retirement “must” be given the option of receiving a pension (by way of annuity) equal to their accrued defined benefits under the plan. The plan administrator, at its discretion, may decide whether this option will be made available to all plan members.

The Manitoba Policy Bulletin, however, goes on to suggest that plan administrators have members sign a form indicating “that the changes are understood and accepted”. Since members are not entitled to decline the conversion, however, it may be that some members may not be willing to sign a form indicating that they “accept” the change. More useful would be an acknowledgement by members that they understand the change, and understand their obligations under the DC plan going forward.

Oosterbosch filed a claim for wrongful dismissal. As part of its defence, the employer argued that Oosterbosch was guilty of “wilful misconduct, disobedience, or wilful neglect of duty”, and, therefore, pursuant to the regulations under the Employment Standards Act, 2000 (the ESA), he was not entitled to statutory termination or severance payments.

The Court found that, while Oosterbosch was dismissed for just cause and his conduct was casual and careless – it was not wilful:

He was undoubtedly careless and the persistence of that carelessness justified his dismissal. I would not, however, characterize his offending behaviour as “wilful misconduct, disobedience or wilful neglect of duty” that would disentitle him to receipt of termination and severance payments under the provisions of the Employment Standards Act, 2000.

Accordingly, the Court awarded Oosterbosch statutory termination pay and severance pay pursuant to the ESA.

The Oosterbosch decision may prove to have implications for employers who sponsor defined benefit pension plans.

As result of the changes to the Ontario Pension Benefits Act (the PBA), employees who are dismissed on or after July 1, 2012 for reasons other than “wilful misconduct, disobedience or wilful neglect of duty” or other prescribed circumstances (such circumstances have not yet been prescribed), will be entitled to grow-in benefits. The test in the PBA mirrors that in the ESA.

Based on the Oosterbosch decision, the fact that an employee who is eligible for “grow in” benefits (or will be eligible for “grow in” benefits within the applicable notice period) is dismissed for cause at common law will not necessarily disentitle him or her from receipt of “grow in” benefits. To avoid paying “grow in” benefits, the employer must establish that the employee’s conduct is “wilful” and not merely careless.

Shortly after their separation, Mr. and Mrs. King entered into a separation agreement, which contained a general pension release, providing, in part, that Mr. King would be entitled to the “...sole use, ownership and benefit of... pension plans registered in his name as at the date of separation...” This included the benefits to which Mr. King was entitled under the registered pension plan. The separation agreement further provided that Mr. and Mrs. King would each execute any documents required to give effect to the terms and intent of the separation agreement.

The Court held that, pursuant to s. 44(1) of the Pension Benefits Act (Ontario) (PBA), Mr. King’s pension became a joint and survivor pension when the first instalment of his pension was due in January 1992. At that time he was married to his former wife.

The Court went on to say that the general release provision of the separation agreement did not meet the waiver requirements of s. 46(1) of the PBA, which provides, in part, as follows:

46(1) The persons entitled to a joint and survivor pension benefit may waive the entitlement to receive payment of pension benefits in the form of a joint and survivor pension by delivering to the administrator of the pension plan...a written waiver in the form approved by the superintendent or a certified copy of a domestic contract, as defined in Part IV of the Family law Act, containing the waiver. [Emphasis added.]

Although the separation agreement in this case contained a release, which explicitly released Mr. King’s former wife from any entitlement to Mr. King’s pension, the release did not constitute a valid waiver under the PBA. Such waiver must take the prescribed form and either (i) be included in the separation agreement filed with the pension plan administrator, or (ii) be filed separately with the pension plan administrator. Interestingly, in this case, the separation agreement contemplated the execution of other documents which would be needed to give effect to the separation agreement. Arguably, this would have included the prescribed form required by the Superintendent (at that time the Superintendent’s Form 3).

Although a separation agreement may contain language which purports to waive a spouse’s entitlement to a survivor pension, plan administrators should not be so quick to accept such agreements as valid waivers. The separation agreement itself must contain the proper, prescribed waiver and, if the waiver contained in the separation agreement is not in the prescribed form, a waiver in the prescribed form must be executed and filed with the plan administrator. 

In addition to providing information already contained in the Pension Benefits Act (Ontario) (PBA) and other FSCO policies regarding the administrator’s responsibility to manage and administer the pension plan and the duty of care it owes to plan beneficiaries, the Policy provides some suggestions on how to effectively communicate with plan beneficiaries and provide timely responses to their inquiries and complaints.

• the name of a contact person;
• how to submit complaints and inquiries; 
• the administrator’s expected timeframe for providing a response to inquiries and complaints (FSCO recommends 30 days);
• information relating to the administrator’s internal dispute resolution process (if one exists); and
• the beneficiaries’ right to make a submission to FSCO in cases where a complaint cannot be resolved by the administrator.

FSCO also recommends that administrators develop a written policy on managing inquiries and complaints in accordance with its "Guideline for Developing a Written Policy on Managing Inquiries and Complaints from Plan Beneficiaries".

FSCO acknowledges that, in some instances, service providers will deal directly with inquiries and complaints. It therefore recommends that all agreements between the administrator and the service provider address privacy concerns and provide instructions on how inquiries and complaints are to be processed on behalf of the administrator.

FSCO is seeking comments from interested parties on the Policy and the related guideline by February 11, 2011.

Administrators would be wise to review the recommendations made by FSCO contained in the Policy. Although most administrators may already have a procedure in place to deal with inquiries and complaints, the Policy may be a useful checklist from a “best practice” perspective. In addition, administrators may want to check with their service providers which handle beneficiary inquiries and complaints directly to ensure that they have procedures in place which comply with applicable legislation.

This decision arises from a grievance concerning the company’s decision to unilaterally convert its pension plan from a defined benefit plan to a defined contribution plan.

A new collective agreement was ratified in August 2008. The provisions dealing with the pension plan remained unchanged from the previous collective agreement, and the union failed to obtain the employer’s agreement to maintain the pension plan as a defined benefit plan. After ratification of the collective agreement, the union grieved the conversion of the pension plan and argued that such a change to the pension plan was contrary to the terms of the collective agreement. Specifically, the union argued that the collective agreement, which made reference to the pension plan, secured the “defined benefit promise” and that any substantive change to the “defined benefit promise” could only be achieved through the collective bargaining process.

The arbitrator concluded that since the pension plan formed part of the collective agreement, the amendment power contained in the pension plan, which provided that the company “reserves the right to amend the Plan or discontinue the Plan either in whole or in part at any time”, also formed part of the collective agreement. Additionally, there was nothing in the language of the collective agreement which limited the company’s right to amend the pension plan unilaterally or prevented the company from making changes to the pension plan for the duration of the collective agreement. Therefore, the company did have the power to unilaterally amend or discontinue the pension plan.

The arbitrator also noted that since the union had an opportunity to deal with the pension plan conversion through the collective bargaining process, it could not revive the issue through the grievance procedure.

The arbitrator’s decision lends support to the argument that an employer’s ability to amend a pension plan is not necessarily prohibited simply because the pension plan is incorporated by reference into a collective agreement. The employer’s amendment power is determined by the language in the collective agreement and the pension plan documents. It is therefore necessary to review the terms of the collective agreement and the relevant pension plan documents in order to determine whether a collectively bargained pension plan may be amended without union consent.