Pension Advocacy Group

Pension Advocacy Group "Profoundly Disappointed" With Supreme Court Ruling in Monsanto Pension Surplus Case

(Toronto, Canada, July 29, 2004) – The Association of Canadian Pension Management (ACPM), representing pension plans with $300 billion in assets and over 3 million plan members, is “profoundly disappointed” with the Supreme Court of Canada’s ruling in a major Canadian pension case released today.

The Supreme Court issued its verdict today in the Monsanto case, ruling not to overturn a November 22, 2002 decision of the Ontario Court of Appeal. The ACPM was an intervener in the case. The issue before the Supreme Court of Canada was the interpretation of Subsection 70(6) of the Pension Benefits Act (Ontario) and whether that provision requires a distribution of actuarial surplus on a partial wind-up of a pension plan.

"The ACPM took its unprecedented decision to intervene in this case for two overriding reasons," said Rick McAloney, ACPM President. "First, mandatory distribution of plan surplus from ongoing pension plans jeopardizes funding security for all plan members. Second, this decision has the potential to discourage the maintenance and establishment of defined pension (DB) plans in Canada. This decision is not good news for DB plan members or administrators."

The ACPM argued it is inequitable to benefit one group of members - in this case, those affected by a partial plan wind up - because the date of the partial wind-up happened to be at a time when the plan was in
surplus, while leaving remaining members, including retirees, in a plan with less secure, possibly deficit, funding. The Office of the Superintendent of Financial Institutions (OSFI), the regulator charged with protecting federally-regulated pension plans across Canada, added weight to this argument, intervening before the Supreme Court, expressing similar concerns about the impact of the decision on the health of Canada's DB pension plans.

“What people have difficulty understanding is that true surplus only materializes once the plan is fully wound up,” explains Michael Beswick, Chair of the ACPM's Advocacy and Government Relations Committee. “Forcing a plan to distribute ‘surplus’ in a partial wind-up situation puts the entire plan, including active and retired plan members, at risk. As we have seen recently, a plan can be in surplus one year and in deficit the next. Until the plan is fully wound up, actual ‘surplus’ cannot be determined. In its original wind-up report filed in August 1997 Monsanto offered to distribute any surplus to the terminated members if and when the plan was fully wound up in the future, which was a fair thing to do. This reflected longstanding practice in such cases, which were routinely approved by the Financial Services Commission of Ontario."

The implications of this verdict are significant, specifically on the funding level of pension plans. There are hundreds of partial wind-up cases in Ontario, dating back to 1969, that could be re-opened and reviewed in light of today’s ruling. As Beswick explains, “a plan that was in surplus 10 years ago may be in a deficit situation today. Let’s say there was a partial wind-up during that time of surplus. The plan sponsor could be required to distribute that so-called “surplus” to those former members affected by the partial wind-up, driving the plan further into deficit today.”

The decision will certainly impact how employers fund their pension plans in the future. Many plan sponsors favour “conservative” funding – trying to maintain a funding cushion to counter market downturns. With today’s ruling, that is likely to change. “What incentive is there for a company to fund at a conservative level, allowing for a cushion?" asks Beswick, "Many plan sponsors will now try to fund their plans without accumulating any surplus to avoid being forced to distribute it as a result of a partial wind-up.”

Responsibility for finding a lasting solution to the problems caused by the Monsanto decision now rests squarely with the Ontario government. "The ACPM repeats its call for Ontario to propose remedial legislation similar to that enacted in B.C., Alberta and Quebec as soon as possible." said Beswick. "If the Ontario government doesn't move now to fix this unstable situation, we anticipate increased litigation between pension groups and reduced funding levels in many Ontario plans. Both developments would be harmful to pension plan security."

In December 1996, Mississauga-based Monsanto Canada announced that it would be letting go 146 employees as part of an internal restructuring. At the same time, Monsanto served notice that it would partially wind up its defined benefit plan as of May 31, 1997. Monsanto filed a partial wind-up report for approval with Ontario’s Provincial Superintendent of Financial Services. At the time of filing, the plan’s actuarial surplus was estimated at approximately $14 million. In their report, Monsanto offered to distribute their share of surplus to the terminated members, if and when the plan was ever fully wound up.

The Superintendent refused to approve the wind-up report, claiming that the interests of the terminated plan members were not protected. Monsanto appealed this decision to the Financial Services Tribunal, which ruled 2-1 in Monsanto’s favour in April 2000, ordering the Superintendent to approve the Monsanto report. The Superintendent appealed this decision to the Ontario Divisional Court, which overturned the Tribunal’s decision in March 2001. Monsanto, and other parties (including the ACPM) appealed the decision to the Ontario Court of Appeal. On November 22, 2002, the Court of Appeal upheld the decision of the Divisional Court. Monsanto sought leave to appeal to the Supreme Court of Canada. Leave to appeal the decision was granted in June 2003. The Association of Canadian Pension Management and the Office of the Superintendent of Financial Institutions were both intervenors in the case, arguing against the mandatory distribution of surplus from an ongoing pension plan.

The Association of Canadian Pension Management (ACPM) represents private and public pension plan sponsors, administrators and related stakeholders. The ACPM currently has 750 members across Canada, representing 400 pension plans with approximately 3 million plan members. ACPM’s mission is to promote the growth and health of Canada’s retirement income system by championing the following principles:

For more information, please contact:
Stephanie Woodward, Public Affairs and Communications Officer,
416-964-1260 x.23

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