The August 7, 2009 decision of the Supreme Court of Canada in the Kerry decision1 relating to pension plans essentially upholds the findings of the Ontario Court of Appeal from 2007. The highlights are as follows:
- Provided that (i) there is a single, ongoing pension plan with both a DB and a DC feature, (ii) the members of both parts are beneficiaries of the pension trust fund,2 and (iii) the employer may lawfully take contributions holidays in respect of the DB feature, then it is not unlawful under the Pension Benefits Act (Ontario) or the common law to also apply the surplus in the trust fund to take employer contribution holidays in respect of the DC members of the plan.
- Vis-à-vis payment of pension plan expenses, unless an employer has clearly committed to paying a plan expense, it is not obliged to pay plan expenses and it is not unlawful to charge reasonable and bona fide plan expenses to the pension trust fund (in this case Kerry (Canada) Inc. had committed to paying trust expenses and had continued to do so, but the expenses in dispute related to plan expenses such as actuarial, legal, accounting etc. in the administration of the plan).
- The amendment of a pension plan to allow the employer to charge pension plan expenses to the trust fund is not prohibited merely because the trust agreement or pension plan (or both) contains an "exclusive benefit" clause. However, expenses incurred to review the plan terms in support of a decision to add a DC provision was for the sole benefit of the employer and should not be charged to the pension plan.
- With respect to cost awards in litigation of this type, the court upheld the ruling that the Financial Services Tribunal has no jurisdiction to order litigation costs payable from a pension fund where the fund is not a party to the proceeding (as it was not here) and that while a court has authority to order litigation costs be paid from a pension trust fund in some cases, where the litigation is not for the advantage of all of the beneficiaries of the pension plan, then the matter is "adversarial" and such costs should not be awarded from the pension trust fund.
The foregoing is necessarily an abbreviated highlight of the decision and it must be remembered that all cases turn on their individual facts. Also, seven Justices of the Supreme Court of Canada heard this matter and while five of them supported the Ontario Court of Appeal decision in concluding that the DC contribution holidays were not unlawful, two of the justices disagreed with that conclusion. In the coming days, we will provide a more detailed analysis of this important decision and its implications for employer and other stakeholders in the pension industry. In the meantime employers should take this decision as a welcome "good news" story after a difficult several months on the pension front.