- 1 - CASE LAW UPDATE. Prepared by Lesha Van Der Bij of Osler, Hoskin & Harcourt LLP

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1 - 1 - Volume 22, No. 2 - December 2012 Pensions and Benefits Section CASE LAW UPDATE Prepared by Lesha Van Der Bij of Osler, Hoskin & Harcourt LLP Ubaldini c. Rio Tinto Canada Management Inc., [2012] QCCS 4323 (Que. C.S.) - Court Awards Moral Damages for Stress Caused by Incorrect Annual Statements When Arturo Ubaldini retired from Alcan (subsequently purchased by Rio Tinto) in 1978, he was married and designated his wife as his beneficiary under his pension plan. Arturo and his first wife divorced in He married Erika Gruber in In 1986, Arturo wrote to Alcan and requested that Erika be designated as beneficiary under both the Alcan Pension Plan and Life Insurance Plan. Alcan wrote back, indicating that Arturo would have to complete and return a change of beneficiary card for the insurance plan, but that the pension was still payable to his first wife. Notwithstanding this communication, the Ubaldinis subsequently received statements from 2002 to 2008 indicating Erika was the beneficiary for both the survivor benefit under the pension plan and the death benefit under the life insurance policy. When Arturo died in 2009, Erika asked Alcan to begin paying both the survivor and life insurance benefits. Alcan refused to pay the survivor benefit, as Erika did not qualify as Arturo s spouse. Erika commenced an action, claiming the survivor benefit. The Quebec Superior Court held that Erika did not qualify as a spouse under the Alcan Pension Plan and she was not entitled to the survivor benefit. While Alcan s error, repeated successively in the annual statements of benefits provided to him beginning in 2002, is certainly unfortunate and did cause damages to Mrs. Ubaldini, it did not modify the contract. However, the Court went on to find that Alcan did owe Erika moral damages. The Court was of the view that Alcan was responsible for the stress and feeling of insecurity that its repeated error caused Erika. As a result, the Court awarded Erika $10,000 in moral damages. Carrigan v. Carrigan Estate, [2012] ONCA 736 (Ont. C.A.) - Married & Common Law Spouses Lose Priority Entitling Designated Beneficiary to Death Benefit Ronald and Melodee Carrigan were married in 1973 and remained legally married until Mr. Carrigan died in The Carrigans separated during that time and by January 2000, Mr. Carrigan was living with Jennifer Quinn. He continued to live with Ms Quinn at the time of his

2 - 2 - death. Mr. Carrigan s will, made in 1986, named Ms Carrigan as his estate trustee as well as the sole beneficiary of the residue of his estate, after two bequests to their two daughters. In 2002, Mr. Carrigan designated Ms Carrigan and their daughters as the beneficiaries of the death benefit in his pension plan. Ms Carrigan and Ms Quinn both claimed the pre-retirement death benefit of Mr. Carrigan s pension under s. 48 of the Ontario Pension Benefits Act (the Ontario PBA). Section 48 provides in part: 48.(1) If a member or former member of a pension plan who is entitled under the pension plan to a deferred pension described in section 37 (entitlement to deferred pension) dies before commencement of payment of the deferred pension, the person who is the spouse of the member or former member on the date of death is entitled, (a) to receive a lump sum payment equal to the commuted value of the deferred pension; or (b) to an immediate or deferred pension the commuted value of which is at least equal to the commuted value of the deferred pension. (2) If a member of a pension plan continues in employment after the normal retirement date under the pension plan and dies before commencement of payment of pension benefits referred to in section 37, the person who is the spouse of the member or former member on the date of death is entitled, (a) to receive a lump sum payment equal to the commuted value of the pension benefit; or (b) to an immediate or deferred pension the commuted value of which is at least equal to the commuted value of the pension benefit. (3) Subsections (1) and (2) do not apply where the member or former member and his or her spouse are living separate and apart on the date of the death of the member or former member. The trial judge found that Mr. and Ms Carrigan were living separate and apart at the time of death and that therefore Ms Carrigan was not eligible to receive the death benefit. The trial judge went on to hold that Ms Quinn was entitled to receive the death benefit, because she was a spouse and was living with Mr. Carrigan at his death. Ms Carrigan appealed this decision and her appeal was allowed by the Ontario Court of Appeal.

3 - 3 - The Court of Appeal began its analysis by assuming that both Ms Carrigan and Ms Quinn qualified as spouses for purposes of s. 48. Turning to s. 48, the Court found that the trial judge had erred in concluding that s. 48(3) imposed a requirement that the spouse and the member cannot be living separate and apart on the day of the member s death in order for a spouse to receive the death benefit. Rather, the Court of Appeal was of the view that the word spouse in s. 48(3) must always refer to the legally married spouse, as a common law spouse could not live separate and apart from a member and still be considered a spouse under the Ontario PBA. The Court then went on to find that since s. 48(3) applied, s. 48(1) is no longer applicable, and since s. 48(1) is inapplicable, the difficulty in applying the spousal priority falls away. Once there is no spouse entitlement, the Court found that, the member s designated beneficiary is entitled to the death benefit under s. 48(6) of the PBA. Concluding that s. 48(6) applies, the Court of Appeal held that neither Ms Carrigan nor Ms Quinn was entitled to the pension benefit as a spouse. Instead Ms Carrigan and her two daughters, the designated beneficiaries were entitled to Mr. Carrigan s death benefit. Ms Quinn is seeking leave to appeal this decision to the Supreme Court of Canada. Savoury v. Nova Scotia (Attorney General), [2012] NSSC 70; [2012] NSSC 270 (N.S.S.C.) - Employer Had Not Misrepresented Member s Entitlement to Past Service Savoury worked for the Newfoundland government from 1972 to In 1989, he began working for the government of Nova Scotia. Savoury transferred his pension from Newfoundland to Nova Scotia pursuant to a reciprocal agreement between the two governments. The dollar amount transferred was only enough to purchase a little more than 7 years service with Nova Scotia, leaving a deficiency of more than 8 years. Savoury alleged that he was told by someone during the interview process that the reciprocal agreement would allow him to transfer his Newfoundland pension to Nova Scotia without any cost to him. The Nova Scotia government advised Savoury that he would have to buyback the outstanding service. Over the years, Savoury periodically asked how much it would be to buyback his outstanding service and asked his supervisors (without success) to waive this payment. In 2006, Savoury commenced an action against the Province of Nova Scotia seeking a declaration that he was entitled to be credited with full pensionable service equivalent to the 15 years, 3 months and 22 days accumulated under the Newfoundland pension, without cost to him. Savoury argued that there was a contractual obligation to credit him with full pensionable service, or in the alternative he was misled into relying upon information negligently provided to him prior to being hired which resulted in his loss. The action was dismissed. The Nova Scotia Supreme Court held that the burden was on Savoury to prove, on a balance of probabilities, that he had received a verbal representation amounting to a contractually enforceable condition of employment or, alternatively, that he had been mislead to believe that

4 - 4 - he would receive full credit for his Newfoundland and Labrador pensionable service upon transfer to Nova Scotia. The Court went on to find that Savoury had failed to discharge this burden, finding no evidence that the Nova Scotia government had made any representations to him regarding his Newfoundland pension service. The Court also noted that Savoury was not naive, having held a senior position with the Newfoundland government. Furthermore, the Court noted that even if there was sufficient evidence to support Savoury s claim his failure to commence the action until more than 16 years had elapsed after it first became known to him presents Nova Scotia with a valid defence pursuant to the Limitation of Actions Act. In a separate decision the Court went on to award the Nova Scotia government costs, ordering Savoury to pay $45,000. Ted Leroy Trucking Ltd. (Re), [2012] BCSC 178 (B.C. S.C.) - Payments Owed to Third Party Service Providers Qualified as Wages Under BIA Ted LeRoy Trucking Ltd. (TLT) was assigned into bankruptcy. TLT agreed to remit payments with respect to employee benefits - e.g., life insurance, accidental death and dismemberment insurance, weekly indemnity benefits, rehabilitation services, health care and dental benefits, and BC MSP premiums - to three third party service providers. TLT failed to make the required remittances and each of the third party benefit providers filed a proof of claim in the bankruptcy proceedings. The trustee accepted that each claim was secured pursuant to s of the Bankruptcy and Insolvency Act (BIA), which secures the claims of workers who are owed wages and other compensation to a limit of $2,000 per employee. Human Resources and Skills Development Canada, which had a claim against TLT in respect of unpaid wages pursuant to the Wage Earner Protection Program Act, challenged the benefit providers claim, arguing, among other things, that third party benefit providers do not come within a clerk, servant, travelling salesperson, labourer or worker contemplated by s of the BIA. Application dismissed. The B.C. Supreme Court reviewed its previous Ted Leroy Trucking decision (which was upheld by the British Columbia Court of Appeal) and held that the issues presently before the Court had already been decided in those earlier decisions. Specifically, the Court noted the Court of Appeal s finding that wages for purposes of s of the BIA extends to payments made by an employer to third parties pursuant to a contract of employment (i.e., money that is not payable directly to an employee). Whether the payment was made by an assignment or direction to the third party, the Court viewed it as a transfer of the employee s money for the benefit of the employee, not the third party, and therefore entitled to protection under the BIA. As a result, the Court upheld the decision of the Trustee, concluding that the amounts owed to the benefit providers would qualify as wages for purposes of s of the BIA, and thus be entitled to the protection of a secured creditor.

5 - 5 - Gregg v. Freightliner Ltd., [2012] BCSC 415 (B.C. S.C.) - Members Added to Surplus Distribution After Deadline A defined benefits (DB) pension plan established for non-union employees of Western Star Trucks Ltd. was wound up effective September 30, At that time, the plan had no surplus. The plan members started a class action, arguing that the plan s surplus had been wrongfully depleted, used and/or misappropriated by their employer. As a part of the certification process, Freightliner, the successor to Western Star, was ordered to mail a detailed form of notice to the prospective class members. Members residing outside of B.C. were required to sign an opt-in form by a fixed deadline in order to participate in the class proceeding. Notice of the class action was given to potential class members using three methods: (i) regular mail; (ii) publication in two local newspapers as well as La Presse (Montréal) and the Globe and Mail (National ed.); and (iii) posting the notice on the website of class counsel. Personal delivery was not required. Freightliner used the addresses maintained by the actuaries for the mailing, though after concerns were raised, additional notices were sent to certain members using addresses maintained by a life insurance company. The action was ultimately settled through mediation and the settlement approved by the Court. While the first phase of distribution of the settlement funds was underway, a relatively small number of non-resident plan members who had failed to opt-in within the compulsory timeframe, lodged complaints about their exclusion from participation in the distribution of the settlement monies. They claimed that they had not received notice by mail or any other means and, therefore, had been unaware of the requirement to opt-in to the class action. Freightliner applied to the Court to determine whether the Certification Order and/or the Settlement Approval Order should be amended so as to incorporate within the distribution group, those of the complainants who were not notified of the need to opt-in to the class action, and would have exercised their right to do so before the expiration of the opt-in period had they been aware. The B.C. Supreme Court noted that a variety of notification methods were used, but short of requiring personal delivery, the chosen notification process may not be effective in every case. Further, the Court held that there is case authority that supports the extension of a registration deadline even after a settlement of the case has been attained in appropriate circumstances. The Court refused to hold the complainants to a deadline of which they were not aware. The Court also noted that the settlement in this case differed from class proceedings where the quantum of the settlement is directly tied to the actual or projected number of participating class members and their individual damages as all of the plan beneficiaries were entitled to the surplus. As a result, the Court concluded that where the notice was not mailed to the member s proper address, these members should be included in the distribution group. Two complainants who simply failed to respond to the notices were not included. Strathroy-Caradoc Police Association v Municipality of Strathroy-Caradoc Police Services Board, [2012] CanLII (M. E. Cummings) - Termination of Benefits at Age 65 Requires Clear Collective Agreement

6 - 6 - The grievor was employed by the Strathroy-Caradoc Police Services as a dispatcher. After turning 65, the grievor continued to work full-time. The grievor was informed that her health and welfare benefit coverage ceased on her 65th birthday. The union launched a grievance arguing that while the Ontario Human Rights Code (the Code) permits employers to provide different benefit entitlements to employees over the age of 65, the collective agreement did not differentiate benefit entitlement on the basis of age. The employer argued that the parties had specifically negotiated for a benefit plan that gave different benefits to employees over the age of 65 years by referencing the underlying policy in an appendix to the collective agreement. This policy, in turn, specified that all benefits except accidental death and dismemberment insurance, end when the employee turns 65 years old. An employee booklet also indicated that benefits ended at age 65. Grievance allowed. The arbitrator recognized that the Code permits employers to provide different (or no) benefits to employees 65 years of age and older, but held that in the collective bargaining context such distinction depends upon the terms of the collective agreement. Specifically, it requires clear and unambiguous language indicating an intention to provide lesser benefits to employees who work after age 65. The arbitrator noted that the parties took no active steps to change their collective agreement after the Code was amended. The arbitrator went on to find that the insurance policy did not form part of the parties bargain, noting that the employer could unilaterally change the insurance carrier and thus the underlying policy. Further, the employee booklet did not reflect the parties bargain either. Finding that the parties had not negotiated clear and unambiguous language that benefits would not be provided for members who work past the age of 65, the arbitrator concluded that there was no age limitation on health and welfare benefits and the policy was at odds with the collective agreement. Independent Electricity System Operator v Power Workers Union, [2012] CanLII 8644 (Ont. Arb.) - Arbitrator Does not Defer to FSCO & Determines Unilateral Change Contrary to Collective Agreement The Independent Electricity System Operator (IESO) and its predecessor, Ontario Hydro, had a long-standing practice that allowed terminating employees to mix & match their pension portability options with respect to the period of service preceding January 1, 1987 and the period of service post-dating December 31, 1986 (i.e., they could choose a deferred pension for part of their service and commuted value for the other part). In 2004, the IESO was advised that the mix & match option was not permitted under the Ontario PBA, nor was there any provision in the IESO plan or the collective agreement which explicitly permitted it. (As a part of this opinion, the Financial Services Commission of Ontario (FSCO) was consulted on a no names basis and FSCO advised that it would not object to such an option.) The union was not advised of the legal opinion or of FSCO s position. Shortly thereafter, the IESO directed its plan administrator to no longer offer the mix & match option, and the forms used by plan members to elect their pension termination options were amended to reflect this change. The following year, the IESO provided a draft of the plan booklet,

7 - 7 - amended to remove the mix & match option, to the union. After realizing that the mix & match option had been removed, the union launched a grievance. After further communication with the regulator, FSCO specified that it does not take the position that a member has a right or entitlement to elect a partial transfer under the Pension Benefits Act. Our position is that section 42(1) does not prohibit such a transfer if the plan wishes to so provide. The Superintendent refused to make an order against the IESO requiring it to provide the employee with the mix & match option. Grievance allowed. The arbitrator began by noting that he could not simply defer to FSCO s determination, since FSCO had been asked to determine whether the IESO s failure to offer the mix & match option violated the Ontario PBA, but it did not determine the question before the arbitrator being whether the unilateral removal of the mix & match option violated the collective agreement. Further, the arbitrator held that the union was not estopped from bringing the grievance as a result of FSCO s determination. Turning to the merits, the arbitrator held that the mix & match was not prohibited under the Ontario PBA based on his reading of the Act, as well as FSCO s conclusion that s. 42 of the Ontario PBA does not preclude the mix & match if the pension plan permits it. The arbitrator then determined that, notwithstanding FSCO s conclusion to the contrary, the plan could be interpreted as including a mix & match option. In particular, the arbitrator noted that the plan must be read with the terms of the collective agreement, which references the employee booklet. The booklet, in turn, makes quite clear that the parties contemplate the mix & match. The arbitrator also noted that changes to the plan were to be made only by mutual consent, and only at bargaining of renewal collective agreements. The advice of legal counsel was not sufficient to fall within the collective agreement s exception permitting unilateral action by the employer in the event of the enactment of any general pension legislation applicable to the employees of the IESO. Vladescu v. CTV Globe Media Inc., [2012] ONSC 4233 (Ont. Sup. Ct.) - Pre-Retirement Death Benefit May be Assigned under PBSA Gabriel Filotti worked for CTV Globe Media Inc. (CTV) and was a member of its federally registered, DB pension plan. Filotti divorced Florina Vladescu in 2002, and the separation agreement provided that Vladescu would receive the survivor benefits from Gabriel s pension. A schedule to the separation agreement which stated I, Gabriel Filotti, irrevocably authorize and direct you to pay all survivor benefits pursuant to the above pension to Florina Vladescu in the event of my death and this shall be your good and sufficient authority for so doing and a beneficiary designation designating Vladescu as beneficiary of any death benefits were sent to CTV. Filotti subsequently remarried and provided a new beneficiary designation in favour of his new wife plus a declaration certifying that no interest in my pension entitlement has been assigned or granted by an agreement or court order. CTV wrote to Filotti in 2006 indicating that it was not able to recognize Vladescu as his spouse under the plan and she would not be entitled to any survivor benefits.

8 - 8 - Filotti died and a pre-retirement death benefit became payable from the plan. CTV was of the view that the benefit should be paid to Filotti s new wife. Vladescu argued that the benefit was payable to her and that if she had known of CTV s 2006 letter, she would have taken steps when Filotti was still alive to respond to it. The Ontario Superior Court began by finding that the death benefit was assignable under the federal Pension Benefits Standards Act (PBSA). Parliament opted to give separating spouses under the regime of the PBSA much greater flexibility by allowing them to assign all or part of the pension to a spouse or former spouse without limitation. Further, the Court agreed with the Ontario Court of Appeal decision in Stairs that the subsequent spouse could not be considered prejudiced by such a position, as a subsequent spouse who marries after a valid assignment of a pre-retirement death benefit to a former spouse should not reasonably expect to receive the already assigned interest. However, the Court went on to find that the separation agreement in this case did not clearly assign the benefit to Vladescu. *W+hile section 13 of the Separation Agreement and the schedule C document appear to maintain that the Plaintiff is solely entitled to full survivor benefits on the death of Mr. Filotti, s of the agreement itself contemplates or acknowledges that a full or complete transfer or irrevocable assignment might not be possible in the event of a future marriage. As a result, the Court dismissed Vladescu s action and ordered that the pre-retirement benefit be paid to the new spouse. LEGISLATIVE AND REGULATORY UPDATE 1 Prepared by Lesha Van Der Bij of Osler, Hoskin & Harcourt LLP Federal Final PRPP Regulations The first tranche of finalized Pooled Registered Pension Plans (PRPP) regulations were published on October 24, 2012 (draft regulations had been released for public comment in August of this year) and the second tranche of the PRPP regulations were pre-published on October 27, Now that the 15 day public comment period has ended, they are subject to final consideration by the Government. Federal Budget Bill C-45 Bill C-45, A second Act to implement certain provisions of the budget tabled in Parliament on March 29, 2012 and other measures, was introduced for first reading on October 18, 2012 and passed second reading on October 30, If passed, the Bill will include the following amendments to the Income Tax Act: include an employer s contributions to a group sickness or accident insurance plan in an employee s income in certain circumstances; 1 This update does not include the pension benefits standards legislation of provinces other than Ontario.

9 - 9 - amend the rules applicable to retirement compensation arrangements (RCA), including to provide that income received from a RCA is eligible for pension income splitting in certain circumstances; amend the rules applicable to Employees Profit Sharing Plans (with respect to excess amounts); and introduce tax rules to accommodate PRPPs. In addition, the Bill will amend the Public Service Superannuation Act to provide that contributors pay no more than 50% of the current service cost of the pension plan and raise the pensionable age from 60 to 65 in relation to persons who become contributors on or after January 1, The Royal Canadian Mounted Police Superannuation Act and the Canadian Forces Superannuation Act would also be amended to change the limitations that apply in respect of the contribution rates at which contributors are required to pay as a result of amendments to the Public Service Superannuation Act. OSFI Annual Report The Office of the Superintendent of Financial Institutions (OSFI) has released its annual report. It includes information and statistics on OSFI s risk assessment and supervision program, estimated solvency ratios, pension plan asset breakdowns, and highlights of OSFI s survey of private pension plans. OSFI Policy re Buy-In Annuity Products OSFI has released a Policy Advisory to inform plan administrators of its expectations in areas relevant to a buy-in annuity investment for a federally regulated pension plan. OSFI has concluded that, provided the investment would be permissible under the plan terms, they would have no objections in principle to a federally regulated pension plan investing in a buy-in annuity issued by a life insurance company for pensions in pay. OSFI Pension Coverage Statistics OSFI has released statistics on pension coverage in Canada, including: registered pension plan (RPP) membership increased from 5.4 million in 2000 to 6.1 million in 2010; proportion of paid workers covered by a RPP declined from 41% in 2000 to 39% in 2010; RPP coverage in the public sector remained relatively constant (around 87% of public sector employees) from 2000 to 2010, but RPP coverage in the private sector decreased from 28% to 24% from 2000 to 2010; and

10 DB coverage in the private sector has reduced from 76% to 52%, while the public sector has remained stable, with 94% continuing to be covered by DB plans. CRA Pension Limits for 2013 The Registered Plans Directorate at the Canada Revenue Agency has updated the rates for money purchase, registered retirement savings plan, deferred profit sharing plan and defined benefit limits, which may be used to calculate pension adjustments, past service pension adjustments and pension adjustment reversals. The Directorate has also increased the Year s Maximum Pensionable Earnings to $51,100 for Ontario Additional Ontario legislative and regulatory updates are contained in the FSCO update which can be found in the Appendix. Ontario Report re Pooled Asset Management for Public Sector Plans On November 16, 2012, Bill Morneau released his report regarding pooling assets of Ontario public sector pension plans. His report was based on consultations with public-sector pension and investment administrators and sponsors, public-sector labour groups and retirees, current and former leaders of large pension and other investment funds, and Ontario s investment management community. The report recommends that a new pooled asset manager - the Ontario Investment Management Corporation (the Corporation) - be established to oversee investments on behalf of Ontario s public-sector pension funds, as well as certain non-pension investment funds. The report estimates that the proposed pooling framework would achieve potential savings of between $75 million and $100 million annually, once fully implemented. The government is seeking feedback on the report s recommendations. Ontario Regulation re Letters of Credit On November 15, 2012, the Ontario government filed Regulation 364/12, which sets out the regulatory framework for letters of credit. This regulation and the related amendments to the Ontario PBA (in Bill 120) have been proclaimed in force effective January 1, 2013.