In a decision released last month, the Federal Court of Appeal overturned a lower court decision and confirmed an earlier ruling by the federal Superintendent of Financial Institutions, in Rogers Communications Inc. v. Buschau 2009 FCA 258. This is the latest decision in a long saga of court challenges over the right to surplus assets, between Rogers and a group of its employees, including three decisions of the British Columbia Court of Appeal in 2001 and 2004 and a decision of the Supreme Court of Canada in 2006.

Rogers acquired Premier Communications Ltd. in 1980 and with that acquisition, a pension plan that Premier had established six years earlier in 1974. The Premier Plan had a substantial surplus. In 1984 Rogers closed the Premier Plan to new entrants, withdrew close to $1 million in surplus assets the following year (which was paid back in 2001) and thereafter started taking contribution holidays. In 1992 it merged the Premier Plan with four other Rogers pension plans.

In order to access the surplus assets, the members of the Premier Plan sought to have the Premier Plan terminated by invoking an archaic rule under a legal decision from 1841 in Saunders v. Vautier. The Supreme Court of Canada decided this rule is not applicable to modern pension plans. The Court also decided that the Superintendent does not have a general discretion to terminate pension plans.

Supreme Court of Canada left certain matters to be decided by the Superintendent, such as whether the taking of contribution holidays by Rogers effectively terminated the Premier Plan, whether Rogers could amend the merged pension plan to admit new members, and whether the contribution holidays were illegitimate and concealing an improper refusal to terminate the Premier Plan.

The members requested the Superintendent to declare the Premier Plan terminated, to replace Rogers as the administrator, and to wind-up the Premier Plan and distribute the surplus assets to the members. Meanwhile, Rogers requested the Superintendent to amend the Rogers Plan to revoke the prior merger and to admit new employees of the successor to Premier Communications Ltd. into the Premier Plan.

The Superintendent granted the applications to revoke the merger and to open the Premier Plan to new members. She decided that Rogers’ applications did not contravene applicable pension legislation (the federal Pension Benefits Standards Act). She further found that the pension plan had not been terminated by virtue of taking contribution holidays. Lastly, she decided not to exercise her discretion to terminate the plan.

She stated that:

“the continued existence of this pension plan is a worthy goal and that the employer is continuing to provide the promised benefits and complying with solvency requirements”.

Further:

“The amendments implementing these decisions do not take away existing rights or entitlements. … I am of the opinion that in deciding to revoke the merger and to reopen the Plan to new employees, [Rogers] and Cable Inc. are not acting contrary to safe and sound financial or business practices, and are not jeopardizing the pension benefits of the Members, and are not contravening the PBSA nor the terms of the Plan.”

The members sought judicial review of the Superintendent’s decision before the Federal Court. The Federal Court held the Superintendent’s decisions were unreasonable, given the scope of her discretion, the evidence before her and a failure to appreciate her duty to the pension plan members. The Federal Court reviewed the events since 1984 and concluded that Rogers had no intention to reopen the Premier Plan until the members applied to terminate it. In the Court’s view, the Superintendent failed to provide the plan members with a much needed remedy under the legislation.

The Federal Court of Appeal overturned the lower court’s decision. The key issue before the Court of Appeal was whether the Superintendent improperly exercised her discretion in making her rulings. In other words, what standard of review should a court apply in reviewing the decisions of a pension regulator? Should the pension regulator be held to a strict standard of correctness, under which decisions may be overturned if a court holds them to be incorrect, or a more lenient standard of reasonableness under which decisions will not be overturned unless they are found to be unreasonable within the regulators scope of discretion?

The Court held that the appropriate standard of review, both on questions of interpretation of the Pension Benefits Standards Act and on administrative or discretionary matters is one of reasonableness. The Superintendent is to be given deference in its decisions. The Court further found that the Superintendent’s decisions were, in fact, reasonable:

“A review of the Superintendent’s Decision shows that it is grounded in her assessment of the policy and objectives of the PBSA, specifically, that the continued existence of a pension plan is a worthy goal.”

Rogers’ original decision to merge the Premier Plan into its other pension plans was not irrevocable. The members of the Premier Plan had not acquired rights to the surplus assets such as to prevent Rogers from reversing its earlier decision or to amend the pension plan to open it up to new members. Furthermore, the Premier Plan still had members who were actively accruing benefits. The opening of the plan to more members was not contrary to the terms of the Premier Plan, the underlying trust agreement or pension legislation:

“The objects of the Plan and the PBSA were better served by using the actuarial surplus in the Plan to fund pensions for members of the Plan, including new members, than by providing a windfall to the current members of the Plan at the cost of terminating a viable pension plan.”

The Court also addressed the question of the manner in which the Superintendent is bound to respond to members’ applications:

“Finally, there is the issue of whether the Superintendent must act when plan members ask her to do so. Assuming that this is the case, it does not follow that the action which the Superintendent takes in response to such a request must necessarily be that sought by the plan members. As the Supreme Court pointed out, the Superintendent is bound to exercise her discretion with a view to the remedial purposes of the PBSA.”

This is a very important decision, having practical implications. The decision illustrates the broad deference given by courts toward the decisions of pension regulators. This was also confirmed in the recent decision of the Supreme Court of Canada in Nolan v. Kerry (Canada) Inc. (refer to our Labour & Employment in the News dated August 12, 2009). It is therefore important to exercise due caution in dealing with pension regulators and to recognize that their decisions may be difficult to overturn on appeal.