Are employees entitled to a share of the surplus on a partial pension wind up?
Supreme Court of Canada holds employees are entitled to their share of surplus upon partial wind up
In Monsanto v. Ontario (Superintendent of Financial Services), the Supreme Court of Canada held that employees affected by a partial pension plan wind up are entitled to their share of the surplus at the time the pension wind up takes place.
Background
In 1997 and 1998, Monsanto laid off 146 employees and took steps to partially wind up its pension plan. At the time of the partial wind up, the plan contained an actuarial surplus of over $19 million. The pro-rata share of the surplus relating to the portion of the plan that was being wound up was just over $3 million.
The Superintendent of Financial Services refused to approve Monsanto’s partial wind up report on the basis that it did not provide for the distribution of the pro-rata portion of the surplus on the partial wind-up as required by s. 70(6) of the Pension Benefits Act which provides:
70(6) On the partial wind up of a pension plan, members, former members and other persons entitled to benefits under the pension plan shall have rights and benefits that are not less than the rights and benefits they would have on a full wind up of the pension plan on the effective date of the partial wind up.
However, a majority of the Financial Services Tribunal ordered the Superintendent to approve the report. It held that s. 70(6) of the Act provided no more than a right to participate in surplus distribution when (if ever) the pension plan fully winds up.
The Divisional Court overturned the Tribunal’s decision and the Court of Appeal dismissed Monsanto’s appeal. Monsanto then took the case to the Supreme Court of Canada. It argued that it had no obligation to distribute surplus to employees on a partial wind up; rather, it maintained, s. 70(6) merely gave affected employees a vested right to participate in any full wind up in the future.
The Supreme Court’s decision
The Supreme Court dismissed Monsanto’s appeal. Looking at the plain language of s. 70(6), the legislative scheme and the object of the Act, the Court concluded that employees affected by a partial wind up are entitled to their share of the surplus at the time of the partial wind up. The Court concluded:
The vital importance of pension schemes in the modern labour market is evident. Pension funds are a significant asset for employers and an invaluable nest egg for an aging workforce. Legislative schemes that establish minimum standards and ensure the protection of employee benefits are an element of sound financial and social policy. The facilitation and encouragement of pension plan participation advance the interests of employees, employers and the public. As part of the legislature’s statutory structure that aims to accommodate the interests of ongoing and terminated employees, it enacted s. 70(6) to require actual distribution of the pro rata share of actuarial surplus on plan wind up, be it full or partial.
Howard Goldblatt and Ethan Poskanzer represented the Interveners, Canadian Labour Congress and the Ontario Federation of Labour.
Lawyers
Howard Goldblatt, Ethan Poskanzer