Province now on board with rest of country for MEPPs
A recent decision by the Quebec Court of Appeal has brought Quebec in line with other provinces when it comes to multi-employer pension plans (MEPPs). The case concerned a partial withdrawal from the plan and whether member benefits could be reduced when contributions are not sufficient to pay them.
After years of dispute, the April 2 ruling stated when a pension plan is not 100-per-cent solvent on a going-concern basis upon termination, the benefits of the members are reduced accordingly.
“This decision is rather comforting for employers in Quebec,” said Philippe Lacoursière, a lawyer with McCarthy Tetrault in Montreal. “Before, unlike anywhere else in the country, Quebec legislation and courts didn’t allow reduction of benefits if an employer was lacking funds. So there was always a bit of concern in multi-employer pension plans from companies from other provinces to join in, when there was a company from Quebec, because there was always a bit of a risk. They were afraid, in case of lack of funding, they would have to kick in to compensate.”
The case concerned former employees of two divisions of Multi-Marques Distribution, a Canada Bread company, who joined a union-created defined benefit/defined contribution MEPP in 1992 and 1994. The plan, which is governed by the Supplementary Pension Plan Act (SPPA), had about 4,500 members in Alberta, British Columbia, New Brunswick, Nova Scotia, Ontario and Saskatchewan. And the trustees decided to grant pension credits for past service to employees of these two divisions, to be funded by Multi-Marques for an estimated 15-year period.
The plan provided that if an employer withdrew from the plan with insufficient funding for promised benefits, the benefits payable for that employer’s employees would be reduced to conform to available funding, said Natalie Bussière, a partner at Blakes in Montreal who has been involved with the case since 1998. And when this plan was partially terminated in 1996/1997 because of restructuring at the company, actuarial assumptions concluded there was a shortfall of $4 million to $5 million for past service credits.
Initially registered with the Alberta authority, the pension plan registration was transferred in 2002 to Quebec where most of the participants lived. And in May 2002, the Régie des Rentes du Quebec decided two parts of the plan infringed the SPPA. For one, it said the act provides that the amount to be funded to ensure full payment of benefits constitutes an employer debt, which therefore nullifies the provisions of the pension plan, and secondly, the benefits cannot be subject to a suspensive condition.
“So the trustees said on the one hand you’re telling us you cannot have benefits subject to funding and, on other hand, you’re telling us you cannot get the employer to pay the full debt in relation to those benefits,” said Bussière. “So you’re forcing us to fund the benefits in relation to the withdrawing employers.”
The trustees contested that decision but the Régie review board, the Administrative Tribunal of Quebec and the Supreme Court of Quebec all maintained the same decision in 2003, 2004 and 2006, respectively.
“We felt this was patently unreasonable because it did not reflect the wording of the SPPA,” said Bussière. “Our basic theory in a nutshell was to say a pension plan is by essence a contract. So you can do everything you want provided it’s not prohibited by the applicable laws. So (we said) find us something in the SPPA that says in a MEPP DC-DB plan one cannot grant benefits under what we call a suspensive or substantive condition, which means giving benefits contingent on their funding.”
Finally, the Court of Appeal ruled the previous decisions were wrong and, according to the SPPA, it is the pension plan that determines or indicates the value of the normal pension or the method of calculation, not the SPPA. And this arrangement, said the court, is in “perfect agreement” with the act.
“It’s the text of the pension plan that tells you what you’re entitled to get in terms of a normal pension, how you will calculate the normal pension, and this is usually calculated in view of your years of service or your past service credits,” said Bussière.
And while the SPAA states the amount to ensure full funding constitutes a debt to the employer, when the pension plan is not 100-per-cent solvent upon partial termination, the benefits of the members are reduced accordingly.
The previous decisions were unsettling because all MEPPs are negotiated plans, so parties, employers and unions have agreed and negotiated the values of those benefits and the level of contribution paid by the employer, said Bussière.
“It was quite troubling to have a sudden different view taken by the courts, saying, ‘We don’t care what was negotiated, we changed the nature of that plan.’ So it was very uncomfortable,” she said.
And it created all kinds of issues with regards to MEPPs covering employees outside and inside Quebec, because there were different rules in the other provinces.
“It’s definitely an important decision for Quebec and employers, following the main trend of the other provinces, and it’s about time this happened. Quebec now seems on board with the rest of the country,” said Lacoursière. “We have a tendency to try to be different and original.”
But he cautioned the Quebec Court of Appeal’s decision is very specific to the provisions in this particular plan, so it’s hard to say if the ruling applies at large for any plan coming from Quebec.
“I’m not 100 per cent sure it will make MEPPs from Quebec bullet-proof,” he said.
After years of dispute, the April 2 ruling stated when a pension plan is not 100-per-cent solvent on a going-concern basis upon termination, the benefits of the members are reduced accordingly.
“This decision is rather comforting for employers in Quebec,” said Philippe Lacoursière, a lawyer with McCarthy Tetrault in Montreal. “Before, unlike anywhere else in the country, Quebec legislation and courts didn’t allow reduction of benefits if an employer was lacking funds. So there was always a bit of concern in multi-employer pension plans from companies from other provinces to join in, when there was a company from Quebec, because there was always a bit of a risk. They were afraid, in case of lack of funding, they would have to kick in to compensate.”
The case concerned former employees of two divisions of Multi-Marques Distribution, a Canada Bread company, who joined a union-created defined benefit/defined contribution MEPP in 1992 and 1994. The plan, which is governed by the Supplementary Pension Plan Act (SPPA), had about 4,500 members in Alberta, British Columbia, New Brunswick, Nova Scotia, Ontario and Saskatchewan. And the trustees decided to grant pension credits for past service to employees of these two divisions, to be funded by Multi-Marques for an estimated 15-year period.
The plan provided that if an employer withdrew from the plan with insufficient funding for promised benefits, the benefits payable for that employer’s employees would be reduced to conform to available funding, said Natalie Bussière, a partner at Blakes in Montreal who has been involved with the case since 1998. And when this plan was partially terminated in 1996/1997 because of restructuring at the company, actuarial assumptions concluded there was a shortfall of $4 million to $5 million for past service credits.
Initially registered with the Alberta authority, the pension plan registration was transferred in 2002 to Quebec where most of the participants lived. And in May 2002, the Régie des Rentes du Quebec decided two parts of the plan infringed the SPPA. For one, it said the act provides that the amount to be funded to ensure full payment of benefits constitutes an employer debt, which therefore nullifies the provisions of the pension plan, and secondly, the benefits cannot be subject to a suspensive condition.
“So the trustees said on the one hand you’re telling us you cannot have benefits subject to funding and, on other hand, you’re telling us you cannot get the employer to pay the full debt in relation to those benefits,” said Bussière. “So you’re forcing us to fund the benefits in relation to the withdrawing employers.”
The trustees contested that decision but the Régie review board, the Administrative Tribunal of Quebec and the Supreme Court of Quebec all maintained the same decision in 2003, 2004 and 2006, respectively.
“We felt this was patently unreasonable because it did not reflect the wording of the SPPA,” said Bussière. “Our basic theory in a nutshell was to say a pension plan is by essence a contract. So you can do everything you want provided it’s not prohibited by the applicable laws. So (we said) find us something in the SPPA that says in a MEPP DC-DB plan one cannot grant benefits under what we call a suspensive or substantive condition, which means giving benefits contingent on their funding.”
Finally, the Court of Appeal ruled the previous decisions were wrong and, according to the SPPA, it is the pension plan that determines or indicates the value of the normal pension or the method of calculation, not the SPPA. And this arrangement, said the court, is in “perfect agreement” with the act.
“It’s the text of the pension plan that tells you what you’re entitled to get in terms of a normal pension, how you will calculate the normal pension, and this is usually calculated in view of your years of service or your past service credits,” said Bussière.
And while the SPAA states the amount to ensure full funding constitutes a debt to the employer, when the pension plan is not 100-per-cent solvent upon partial termination, the benefits of the members are reduced accordingly.
The previous decisions were unsettling because all MEPPs are negotiated plans, so parties, employers and unions have agreed and negotiated the values of those benefits and the level of contribution paid by the employer, said Bussière.
“It was quite troubling to have a sudden different view taken by the courts, saying, ‘We don’t care what was negotiated, we changed the nature of that plan.’ So it was very uncomfortable,” she said.
And it created all kinds of issues with regards to MEPPs covering employees outside and inside Quebec, because there were different rules in the other provinces.
“It’s definitely an important decision for Quebec and employers, following the main trend of the other provinces, and it’s about time this happened. Quebec now seems on board with the rest of the country,” said Lacoursière. “We have a tendency to try to be different and original.”
But he cautioned the Quebec Court of Appeal’s decision is very specific to the provisions in this particular plan, so it’s hard to say if the ruling applies at large for any plan coming from Quebec.
“I’m not 100 per cent sure it will make MEPPs from Quebec bullet-proof,” he said.
