The recent decision of the Saskatchewan Court of Queen’s Bench in McNaughton v. Saskatchewan Government and General Employees’ Union is the first case to my knowledge where the plan members obtained an injunction to prevent the plan sponsor from implementing a contribution increase, pending receipt of approval from the Canada Revenue Agency (the CRA).
The plan at issue in this case was sponsored by the Saskatchewan Government and General Employees’ Union (SGEU), who proposed to increase the employee contribution rate to 54.25% of employee earnings.
The plan included 35 active members who had historically made contributions of 9% of earnings to the plan (employee contributions were matched by SGEU). In order to fund a plan deficiency disclosed by an actuarial valuation as at December 31, 2008, SGEU made a series of increases to the amount of employee contributions under the plan. After increasing the employee contribution rate to 19.6% on November 5, 2009, SGEU notified plan members that it intended to amend the plan and further increase the rate to 54.25% effective January 14, 2010. The pension plan’s active members sought an injunction to restrain SGEU from implementing the rate increase until the CRA approved the plan amendment.
In granting the injunction, the Court found that it was not reasonable for SGEU to expect the CRA to approve of the proposed increase to the employee contribution rate, since the CRA had indicated to SGEU’s counsel that it would not do so. The Court further held that SGEU’s proposed increase to the employee contribution rate, if implemented, would inflict irreparable harm on the plan participants by requiring some of the plan members to quit their jobs and look for employment elsewhere. As such, the Court held that the balance of convenience favoured the pension plan members as opposed to SGEU who simply had to wait until a final decision on the amendment was made by the CRA.
Clearly this was not an ordinary contribution hike. In fact, underlying the litigation was a dispute between the sponsor and the members with respect to the continuation of the plan: the sponsor wanted to terminate it, while the members wanted it to continue. It is likely that the effect of the injunction has been to send the parties back to the negotiating table to hammer out a solution to the real issue.