SESSION/SÉANCE : GAME CHANGERS: HOT LEGAL ISSUES IN THE CANADIAN PENSION WORLD

Transcription

1 SESSION/SÉANCE : GAME CHANGERS: HOT LEGAL ISSUES IN THE CANADIAN PENSION WORLD SPEAKER(S)/CONFÉRENCIER(S) : RANDY BAUSLAUGH, McCARTHY TÉTRAULT LLP JOHN POOS, GEORGE WESTON LTD. #

2 1. Funding Policies: AGENDA Pros & Cons from a Legal & Client Perspective 2. Ontario s New Grow-in Rules 3. PRPPs 4. Case Law Developments Successor Plan Rules Update on Pension Priorities in Insolvency Actuary Liability Employer s Conduct Can Create a Contract 2

3 1. FUNDING POLICIES: PROS & CONS FROM A LEGAL & CLIENT PERSPECTIVE 3

4 CAPSA GUIDELINE 1. Pension Plan Funding Principles & Objectives: promote benefit security acknowledge solvency funding fluctuations avoid ad hoc changes that affect stakeholders promote funding stability and predictability MEPPs seek benefit stability 4

5 CAPSA GUIDELINE (CONT D) 2. Purpose of a Funding Policy The purpose of a funding policy is to establish a framework for funding a defined benefit pension plan taking into account factors that are relevant to the plan and the sponsor. Isn t this what minimum funding requirements under pension standards legislation are supposed to be? 5

6 CAPSA GUIDELINE CONT D 3. Sponsor/Administrator Roles 4. Developing a Funding Policy advantages: doing it, makes you think about it [because you would not otherwise plan out material cost obligations?] increase plan sponsor s discipline around funding decisions [because minimum standards and maximum tax limits are not sufficient?] transparency increase beneficiaries understanding [provide roadmap for plaintiffs legal counsel?] guidance to actuary [insulate from liability for professional judgment?] 6

7 CAPSA GUIDELINE CONT D 5. Elements of a Funding Policy 1. Plan Overview 2. Funding Objectives 3. Key Risks Faced by Plan 4. Funding Volatility Factors and Risk Management 5. Funding Target Ranges 6. Cost Sharing Mechanisms 7. Utilization of Surplus 8. MEPPs 9. Actuarial Methods, Assumptions and Reporting 10. Frequency of Valuations 11. Monitoring 12. Communication Policy 7

8 CAPSA GUIDELINE CONT D Elements of a Good Funding Policy cont d 13. Get legal advice! 8

9 2: Ontario s New Grow-in Rules 9

10 NEW GROW-IN RULES All members whose age and service/membership equal 55 may grow into early retirement subsidies on involuntary termination (with some exceptions) Expected to be effective for terminations on and after July 1, 2012 JSPPs and MEPPs can opt out 10

11 WHAT S EXEMPT? Certain types of termination will not trigger grow-in rights, including: Resignation Termination for cause Termination of construction employees Temporary lay-off Expiry of a fixed-term employment contract 11

12 WHAT CAN EMPLOYERS DO TO PREPARE? Change to consent benefits? Deemed consent in some jurisdictions (e.g. Ontario) Define consent criteria objectively and unambiguously mutually satisfactory or a guide Caterpillar v. Ontario (Superintendent) and CAW (1996, PCO) Policies in some jurisdictions (e.g. Canada) OSFI Policy Advisory Fiduciary determination? Actuarial valuation must reflect practice and policy Remove from plan? Issue with documents that create or support the plan Move to exempt vehicle e.g., Ontario: retirement compensation arrangement 12

13 3. PRPPs 13

14 POOLED REGISTERED PENSION PLANS Low cost? No employer fiduciary duty? 14

15 4. Case Law Developments 15

16 1. NEW TWIST ON SUCCESSOR PLAN RULES Ratansi v. Sup t of Financial Services (2012, FST) Facts Applicants transferred employment from Ontario gov t to federal gov t after introduction of HST Applicants ceased accruing benefits in the Ontario PSPP and began accruing benefits in the federal PSSP Applicants who had reached age 55 argued that they were entitled to elect to receive an Ontario PSPP pension while continuing to work for federal gov t OPB & Sup t argued that applicants were not so entitled because s. 80(3) of the PBA deemed them not to have terminated employment 16

17 Decision RATANSI CONT D FST found in favour of Applicants S. 80(3) is a minimum standard only, and a plan may provide a better entitlement PSPP text provided that a member could elect to receive a pension at 55 as long as s/he was no longer a member of the Ontario public service; Applicants met this criterion To be appealed 17

18 Facts PROVOST V. SUP T OF FINANCIAL SERVICES (2012, FST) Alcan sells a business to Eaglebrook but doesn t transfer pension liabilities Eaglebrook provides successor plan with future service benefits and later sells the business to Kemira and does not transfer pension liabilities Kemira provides a successor plan with future service benefits SALE SALE ALCAN Eaglebrook Kemira ALCAN PLAN EAGLEBROOK PLAN KEMIRA PLAN Quebec Ontario Ontario 18

19 PROVOST CONT D Québec s Régie (major authority for the Alcan plan) ordered Alcan to offer members affected by the sale to Eaglebrook either a c.v. transfer or a deferred pension starting at 55 Mr. Provost, an Ontario-employed member, elected a deferred pension When Mr. Provost reached age 55, he was still employed with Kemira Superintendent argued Mr. Provost not entitled to elect an Alcan pension at 55 because he was still employed with Kemira, and s. 80(3) of the PBA deemed his employment with Alcan not to have been terminated 19

20 Decision PROVOST CONT D FST found in favour of Mr. Provost He was entitled to a pension at 55 based on the Régie s previous order In any case, the FST strongly suggested that s. 80(3) was not generally a statutory bar to providing members with termination options on the sale of a business, even when the buyer has a successor pension plan 20

21 IMPLICATIONS OF RATANSI & PROVOST Application of Multi-Jurisdictional Agreement Applies Gencorp (1998, OCA) case Protects employees from losing service for purpose of calculating entitlements under buyer s and seller s plans Termination of buyer s plan, can cause corresponding termination of seller s plan Overturns Horgan (FST, 2001) and Imperial Oil (FST, 2001) cases FST determines successor provisions prevent a member from commencing a pension under seller s plan while employed by buyer These cases allow employees to take the best of 21

22 IMPLICATIONS CONT D Retroactive application to prior sales? Reconsider advice on purchase and sale transactions What are seller s communication obligations to members? Employment termination options Continuing service options» Contracting out of minimum standards by choosing continuing service option? 22

23 2. UPDATE ON PENSION PRIORITIES IN INSOLVENCY Re Timminco Ltd. (2012, Ont. Sup. Ct.) Facts Timminco & Bécancour Silicon filed for creditor protection under CCAA Timminco entities sponsored: 1 Ont.-reg d DB plan, which was in the process of being wound up with a wind up deficit of $4 million; and 2 Qué.-reg d DB plans with a combined solvency deficit of $11.2 million 23

24 TIMMINCO CONT D Timminco entities requested an order granting superpriority to certain administrative charges and to a DIP loan in the amount of $4 million, as well as an order suspending special payments The CEP and USW opposed the request; they argued that Indalex required super-priority to be granted to deemed trust claims under the Ontario PBA and Québec SPPA 24

25 TIMMINCO CONT D Decision The Court granted the Timminco entities requests Relied on Indalex for the statement that the CCAA judge can make an order granting a super-priority charge that has the effect of overriding provincial legislation, including the PBA If the requested super-priority were not granted, the Timminco entities would likely enter bankruptcy, which would produce no better result for the unions Unions have sought leave to appeal 25

26 IMPLICATIONS OF TIMMINCO Ontario Court of Appeal s 2011 decision in Indalex (currently before the Supreme Court) has been controversial for employers and commercial lenders Timminco shows that the result in Indalex can be avoided 26

27 3. ACTUARY LIABILITY Ault v. Canada (2011, Ont. C.A.) Facts Involved an arrangement developed by an individual actuary: Fed. government employees resigned from employment and transferred their federal pension benefits, at a higher value than would otherwise be the case, to a plan established by the actuary and approved by the federal gov t under a reciprocal transfer agreement CRA advised the federal gov t plan administrator that it had concerns about the legality of the transferee plan Federal gov t didn t convey CRA s concerns to resigning employees CRA later revoked registration of transferee plan 27

28 AULT CONT D Former employees sued the actuary and the federal gov t for negligent misrepresentation and breach of fiduciary duty (claimed damages for salary/pension credits they would have received had they not resigned) They claimed that the actuary (and the federal gov t) should have informed them that CRA had concerns about the legality of the transferee plan They also claimed the actuary acted in a conflict of interest Court of Appeal found both the federal government (60%) and actuary (40%) liable Important to note that the actuary was found separately liable! 28

29 IMPLICATIONS OF AULT Follows two cases in which an actuary has been sued individually: Dawson v. Tolko Industries ( , B.C.), in which an individual actuary and his firm were sued (along with employer) in connection with member communications about a plan conversion (case settled in 2011); and Ontario v. Norton (2006-present, Ontario), in which an individual actuary was charged for allegedly improperly employing asset smoothing techniques in respect of Slater Steel s pension plans 29

30 4. A COURSE OF CONDUCT CAN BE A CONTRACT Polger c. Canadian Jewish Congress (2012, Qué. C.A.) Facts Over 50 years, CJC followed a practice of making additional ex gratia contributions to supplement DC pensions in pay Basically, CJC topped up members so that DC benefits effectively resembled DB benefits based on 2% final earnings Plaintiff former employees claimed that CJC s past practice created an enforceable implicit contract for future supplements, and the trial judge agreed 30

31 POLGER CONT D Decision Unusually, Qué. C.A. re-reviewed the evidence in detail and substituted its own findings of fact A majority found that the plaintiffs could not show the existence of an implicit contract to continue the practice of enhancing benefits Moreover, the Québec civil law principle of custom or usage could not turn a DC plan into something that it was not, namely, a 2% final earnings DB plan 31

32 IMPLICATIONS OF POLGER In some circumstances, past practice can create a contract (those circumstances not present in the Polger case) Actuaries may not always be aware of their clients administrative practices, like ad hoc generosity, especially when not set out in the plan text When those practices are challenged, actuaries should be wary of the risk that the employer then turns around and blames its advisors ( You didn t advise me of this risk! ) 32