A Supreme Court of Canada ruling that allows pension-plan backers to dip into those plans is being hailed as a big winner for employers. The Aug. 7 decision allows companies to take money from the plans they sponsor to pay for expenses related to running them, as well as use surplus funds to take a contribution holiday.
Christine Tabbert, a partner at Fasken Martineau DuMoulin LLP, who with Ronald Walker, represented food manufacturer Kerry (Canada) Inc. in the case against former employees, says the ruling emphasizes that pension plans benefit employees rather than employers, and that there is no statutory or common law that requires employers to pay for expenses. “Payment of these expenses is for the continued integrity and existence of the plan,” says Tabbert.
Kerry Canada had used $850,000 from the pension plan, which has about 80 members, to pay for expenses between 1985 and 2002, when litigation began. The Woodstock, Ont.–based company has also been using surplus funds from its defined benefit plan to help pay for its obligations in that plan as well as the defined contribution plan it set up in 2000 for new employees.
“A number of companies were already doing this,” says Jeff Galway, a partner at law firm Blake, Cassels & Graydon LLP, which represented one of the interveners, the Association of Canadian Pension Management. “They would have been exposed if the decision went the other way.”
The big losers in this case are members of defined pension plans, says Michael Mazzuca, partner at Koskie Minsky LLP, which represented the Kerry employees involved in the case. He says the decision will lead to the erosion of defined benefit plans — something Ontario’s Expert Commission on Pensions (which existed for two years, until Oct. 31, 2008) was supposed to protect — as they are replaced or converted to defined contribution plans. “I don’t believe this is in the best interest of workers in this province or in this country,” Mazzuca says.
The court also ruled pension holders will have to directly pay Kerry’s legal costs. Such costs in similar past cases were paid by the pension fund. Mazzuca says this decision could mean plan members may not be able to fight for what is rightfully theirs, as they don’t have the same resources as plan sponsors.
The possibility of having to pay extra legal costs might dissuade a few people from taking their pension beefs to court, says Galway, because, “there will now be the standard loser-pay rules.”