Larkin et al v Johnson et al 2022 BCSC 603
The British Columbia Supreme Court has confirmed the limited circumstances in which a court may interfere with a discretionary decision of pension trustees.
In a Supreme Court decision pronounced on April 19, 2022, Justice Skolrood dismissed the claims of four members of the B.C. Credit Union Employee’s Pension Plan (the “Plan”), a multi-employer, defined benefit plan, against the trustees of the Plan (the “Trustees”), concluding that the Trustees’ discretion was properly exercised.
A. Nature of Plaintiffs’ Claims against Trustees
The Plaintiffs asserted three claims (in their second amended notice of civil claim) against the Trustees. They alleged the Trustees breached their duty to act in good faith and fiduciary and statutory duties in:
(1) failing to appoint a “representative” Board of Trustees with currently employed or retired Members as Trustees (the “Board Composition Claim”);
(2) failing to warn the Plaintiffs of a solvency deficiency that existed in 2015. In particular, the Plaintiffs alleged that the Trustees owed a duty to warn the members that they were contemplating benefit reductions and failed to do so (the “Duty to Warn Claim”); and
(3) resolving in March 2016 to increase the Normal Retirement Date from age 62 to age 65 in respect of accrued service after January 1, 2017 and upholding that decision despite learning of an improved solvency position of the Plan in late 2016 (the “Increase in Normal Retirement Age Claims”).
B. All Claims Dismissed on a Summary Trial
The Trustees brought a summary trial application to have the entirety of the claims against them dismissed. The application was heard on November 17 to 19, 2022.
The Plaintiffs argued that the case was not suitable for determination by a summary trial on the basis that a full trial with live witnesses was necessary in order for the Judge to make the findings of fact necessary to decide the case. Justice Skolrood concluded that the case was suitable for determination on a summary trial basis. He found that apart from a general statement that credibility will be in issue, the Plaintiffs did not identify any material conflicts in the evidence nor did they point to specific facts giving rise to credibility concerns. Justice Skolrood further concluded that the minutes of the Trustees’ meetings disclosed the information and materials that were before the Trustees and that informed their consideration and decision. This record was more than adequate to permit the Court to find the necessary facts to decide the matters in issue.
Justice Skolrood stated that to subject the decisions of the Trustees to the type of forensic audit that was proposed by the Plaintiffs would significantly impair the ability of trustees to manage the pension plan in accordance with their statutory and fiduciary obligations as well as the duties conferred pursuant to the governing trust agreement.
C. Key Findings With Respect to Claims
The test to be Applied to Review of Pension Trustees' Discretionary Decisions
Justice Skolrood adopted and applied the statements from Edge v. Pensions Ombudsman,  2 All E.R. 547 (Ch.D.) as being the appropriate test when considering the discretionary powers of pension trustees and the limited role of the courts in supervising the exercise of those powers. This confirms that it is for the trustees to exercise the discretion conferred upon them, without interference by the courts, unless the trustees fail to exercise their power for the purpose for which it is given, and are seen to have taken into account irrelevant, improper or irrational factors, or unless their decision can be said to be one that no reasonable body of trustees properly directing themselves could have reached.
The Board Composition Claim
The Plaintiffs argued that the Trustees limited the pool of persons appointed to the Board to those nominees put forward by Participating Employers. The Court rejected this argument, finding the Plaintiffs’ complaint lacked foundation in fact and law.
The Court found that the Trustees followed the proper eligibility criteria for appointment as a Trustee as set out in the Trust Agreement and confirmed that there was no evidence (or even allegation) that Trustees had been appointed in breach of those terms of the Trust Agreement. Indeed, Justice Skolrood concluded, the Trustees’ use of resources (including a developed 'skills matrix' used by the Governance / Nominating Committee) to inform and guide the appointment of trustees reflected “considerable prudence on the part of the Trustees and recognition of the need to appoint Trustees capable of fulfilling their fiduciary obligations”.
The Plaintiffs further argued that it was not “reasonable” for the Trustees to refuse to consider qualified candidates put forward by the BCGEU. Justice Skolrood rejected that argument.
Duty to Warn Claim
The Plaintiffs also argued that the Trustees had a duty to warn members that they were contemplating amendments to the Plan and to advise Plan members of the 2015 solvency deficiency.
Justice Skolrood found that there was no “general duty to warn” about the solvency position of a plan beyond what is required by the applicable legislation, and the Trustees met those statutory requirements. In dismissing this claim, he further found that the Plan members were in fact advised of the funded status of the Plan in their annual pension statements.
Increase in Normal Retirement Date Claims
The central allegation of the Plaintiffs was that the Trustees failed to act reasonably in changing the normal retirement age from 62 to 65. They alleged that the Trustees failed to consider updated financial projections and/or preferred the interests of Participating Employers over members. The court rejected these allegations.
The Court held that the Plaintiffs’ disagreement with the decision to increase the normal retirement date was not grounds for it to be reversed. Justice Skolrood concluded that the Trustees properly considered a variety of relevant factors (including improved mortality tables) and received legal and actuarial advice in resolving to increase the retirement age. He concluded that the consequences of rising contribution rates on Participating Employers and the potential for Participating Employers to withdraw from the Plan was a relevant and proper factor for the Trustees to consider, as it impacts the long-term financial viability and sustainability of the Plan.
In making their decisions, the Trustees had clearly and carefully taken into account the impact upon employees and their retirement benefits.
Having concluded that the Trustees had exercised their powers and discretion in accordance with the applicable legislation and Plan documents, and for the purpose for which it was given, and that the Trustees did not take into account irrelevant, improper or irrational factors, and that their decision was not one that could be said to be one that no reasonable body of trustees properly directing themselves could have reached, Justice Skolrood dismissed the action in its entirety.
This case is noteworthy for, inter alia, the following reasons:
1. It serves as a reminder of the importance of good record-keeping by pension trustees, setting out the factors taken into account in the exercise of their discretionary decision, which assisted the Trustees in this case in being able to dismiss the claim on a summary trial basis;
2. It confirms that there is no statutory or common law duty requiring trustees to warn members about plan changes that are being consider but which have not yet been determined; and
3. It confirms that there is no statutory or common law general duty requiring trustees to warn plan members every time a valuation indicates a deficit. As noted by the Court, a solvency deficiency existing at a particular point in time is simply a theoretical snapshot of the plan’s funded status at that point in time. However, the applicable legislation has provisions dealing with the reporting of funding issues, which must be followed by plan administrators. This includes, for example, providing annual statements to members meeting certain criteria.
The full decision of the British Columbia Supreme Court may be found here.