Employers can use DB surplus to fund DC plan: Supreme Court

Kerry Canada within its right to take a contribution holiday when plan in surplus

A Supreme Court of Canada ruling has given employers more leeway in how to use the surplus funds in a defined benefit (DB) pension plan.

The high court ruled Kerry Canada, a Woodstock, Ont.-based food products company, can take a contribution holiday when the DB plan is in surplus and can use that surplus to pay the plan's administrative costs.

The decision also opens the door to allow employers to use funds from a DB plan to fund a defined contribution (DC) plan.

A committee of pension plan beneficiaries challenged Kerry's ability to take contribution holidays and use the surplus to fund the DB plan as well as a DC plan set up in the year 2000.

In June 2007, the Ontario Court of Appeal ruled an employer could stop paying pension plan expenses if there was nothing specifically in the plan to prevent it.

The ruling also concluded Kerry would not have to pay back the money it took from the fund while it took a contribution holiday.

The Supreme Court upheld the lower court's decision in a 5-2 ruling.

For full details of this decision, and what it means for employers, look for the Sept. 7 issue of Canadian HR Reporter.

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