Employees challenge plan mergers

By Mariette Matos and Zahid Salman
|Canadian HR Reporter|Last Updated: 11/13/2002

Two recent decisions from the Ontario Court of Appeal could have significant repercussions for pension plan sponsors and members.

The decisions address issues arising on pension plan mergers. The judgments in

Huus et al. v. Superintendent of Pensions et al.


Weavexx case

) and

Hinds et al. v. Superintendent of Pensions



decision) were both released on Feb. 14.


In the first case, the company, Weavexx, a manufacturer of materials used in paper production, with two locations in Canada, wanted to transfer assets into a consolidated plan that would harmonize several pension plans operated by its affiliates in Canada and the United States. It applied to Ontario’s Superintendent of Pensions for consent to the transfer, as required under the province’s Pension Benefits Act (the PBA).

Under the PBA, the superintendent must withhold consent to a transfer that doesn’t protect the pension benefits of the plan members and former members.

A pension advisory committee representing the interests of retired salaried members of one of the plans (the Weavexx plan) was concerned that the transfer might remove the members’ potential rights to a distribution of the substantial surplus that had accumulated in the plan.

The committee requested that the superintendent order a partial wind-up of the Weavexx plan. The PBA states that the superintendent may require a plan wind-up where “all or a significant portion of the business carried on by the employer at a location is discontinued.” In


, one of the employer’s plants had been closed, so the superintendent had the option of ordering a partial wind-up, but instead allowed the assets to be transferred and the plans merged, without a partial wind-up of the Weavexx plan. The committee brought an application for judicial review of the superintendent’s decision.

The Divisional Court allowed the application. The superintendent’s consent was set aside and the assets, along with the income earned since the merger, were returned to the Weavexx plan. According to the court, the superintendent did not adequately consider the request for a partial wind-up or the plan trust and surplus issues. The superintendent also failed to observe its fiduciary duty to the employees.

The superintendent appealed to the Court of Appeal but the court upheld the Divisional Court’s decision.

It remains to be seen whether the plan members will be successful in attaining a partial wind-up order. If so, surplus may have to be distributed on the partial wind-up, depending on the much-anticipated final outcome of the Monsanto decision. (The Ontario Court of Appeal will hear the Monsanto appeal on April 28.

For information on Monsanto, select search and enter article #1286 or #834.


Plan merger considerations

What does the


decision mean for plan sponsors that apply to the superintendent in order to merge their pension plans? Plan sponsors will likely be asked to provide reasons as to why the principles of the


case do not apply in their situation. The superintendent has made this request of plan sponsors wishing to merge their pension plans since the Divisional Court’s decision.

When bringing an application to merge plans, be prepared to address the following issues:

•Do the conditions in section 69 of the PBA — those that require the superintendent to consider a wind-up — exist?

•Have the plan contributions been made by the employer alone or have employees also contributed? (This will indicate if the surplus belongs to the plan sponsor or to the members.)

•Has the superintendent satisfied its fiduciary duty to the members? The superintendent’s fiduciary duty includes communicating properly with members and giving them an opportunity to respond and have their concerns adequately addressed.

Ultimately, some merger applications may not be allowed because of the issues raised by the


decision. Some plan sponsors wishing to merge plans may be ordered to wind them up, in whole or in part, instead.




decision concerns the question of whether members of an “importing” pension plan are entitled to notice on a transfer of assets.

In 1990, Bristol-Myers sold its Javex business to Colgate. Colgate agreed to assume the accrued pension liabilities for the Javex employees on the transfer of $4 million from the Bristol-Myers pension plan to the Colgate plan.

Bristol-Myers applied to Ontario’s Superintendent of Pensions for approval of the transfer. After initially refusing, the superintendent eventually approved the transfer when Bristol-Myers provided the actuarial assumptions supporting the $4 million transfer.

The only parties that knew nothing about the transfer were the current and former employee plan members of Colgate. In 1997, one of the former members learned about the transfer. He determined that the liabilities potentially attributable to the Javex employees were closer to $6 million. He was concerned that to meet this $2 million in additional liabilities the surplus in the existing Colgate plan would be used and would thus be unavailable for distribution to the current and former employee members of the plan.

A number of Colgate plan members applied to the Divisional Court to quash the superintendent’s consent to the transfer. The grounds for the application were that, since the transfer affected their interests in the pension plan, the superintendent had a duty to give them notice of the transfer application and provide them with an opportunity to make submissions. The court dismissed the application.

The Colgate plan members appealed the Divisional Court’s decision, but were also unsuccessful in the Court of Appeal.

The issue raised by the plan members concerned the interpretation of the PBA. As noted above, the act prohibits the superintendent from agreeing to a transfer of assets unless the benefits of members and former members of the employer’s plan are protected.

“Employer” is commonly understood to refer to the vendor or exporting company — in this case, Bristol-Myers. The plan members asserted that it also referred to Colgate — the purchaser or importing company.

The Divisional Court rejected this argument and the Court of Appeal agreed. The critical time for giving notice to the members of the Colgate plan was when a proposed amendment to that plan was submitted to the superintendent, not the time of the transfer.

The superintendent could hear applications to transfer and amend together, but the act didn’t require him to do so. The Colgate employees claimed that if their voices weren’t heard until the second step in the process the solvency of the merged plan might be irreparably affected. The Court of Appeal dismissed this assertion as “nothing more than speculation.”

It remains open to the Colgate plan members to raise their concerns on the application to amend their plan. At that time, the issue of whether the transfer of liabilities was fully funded will be addressed. The Court of Appeal decision does not indicate what the repercussions for the importing and exporting companies will be if the funding is found to be inadequate.

Mariette Matos is a legal consultant and Zahid Salman is an actuarial consultant in Hewitt Associates’ Toronto office. They may be contacted at (416) 225-5001 or by e-mail at mariette.matos@hewitt.com and zahid.salman@hewitt.com.

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