Court allows plan amendment made before group layoffs

Change done out of self-interest, not ‘underhanded’

terminated employees of Imperial Oil saw their claims to a pension plan dismissed in the Albert Court of Queen’s Bench. They had challenged a plan amendment made shortly before they were terminated that resulted in their ineligibility.

The 20 or so workers were let go in 1991 after the company’s acquisition of Texaco Canada. Just before the layoffs, Imperial amended the pension plans of both companies so members with 10 or more years had an additional condition that they be eligible to retire within five years of the termination date — meaning members would have to be 50 or older when let go to receive an enhanced early retirement annuity.

The group of employees filed a claim in 1997 saying their employer had breached terms of the pension plan and provisions of the Employment Pension Plans Act, along with breaching fiduciary duties as plan administrator and trustee and a duty of good faith owed as employer.

Numerous proceedings occurred through the years and the latest stage involved a litigation plan approved in 2004 that outlined common issues to be determined in trial.

Imperial’s motivation an issue
A major issue was Imperial’s motivation for making the change. A 1991 memo states: “With the increased volume of involuntary terminations being considered in 1991, both from workforce rebalancing efforts and outsourcing, and with these terminations generally being contemplated for the purpose of maintaining or improving the efficiency of operations, much broader access to (the pension plan) could occur than was intended. The proposed amendment will provide certainty.”

Ancillary benefits are contingent upon eligibility requirements and do not begin to accrue until a plan member meets those requirements, said Justice Neil Wittmann. None of the employees had been terminated at the time of the amendment so it did not reduce benefits accrued to them and was not in violation of the pension plan, he said.

Imperial not acting as administrator
As to the issues of breach of fiduciary duty and trust obligations, Imperial admitted it owed a fiduciary duty to all plan members when acting as administrator but denied it was acting as administrator or trustee when it made the amendment.

The company was aware, as of February 1991, that further involuntary terminations might be necessary to meet restructuring targets but the need for large-scale terminations developed over time, decided Justice Wittmann, and was finalized late in 1991 after poor third-quarter results.
Though Imperial did not act in the best interests of plan members, it was not “motivated by the prospect that the amendment would yield significant savings in the event of a large number of involuntary terminations,” he said.

While Imperial may have acted in self interest, “the outcome of Imperial’s action was otherwise consistent with the scope of the pension plan.”

The company was entitled to make the change under the terms of the pension plan itself and applicable Ont-ario and Alberta legislation, said Justice Wittmann.

“Even if Imperial was motivated by financial self-interest, there is no evidence that Imperial was acting in an underhanded manner or for some collateral purpose.”

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