In light of the Supreme Court of Canada’s decision in the “Monsanto” pension case, what requirements currently apply regarding the treatment of plan surplus at the time of a partial plan termination?
The Supreme Court of Canada’s decision involves the interpretation of provisions in Ontario’s Pension Benefits Act dealing with the partial wind-up of pension plans registered under that Act. The decision confirms that Ontario’s Pension Benefits Act requires the distribution of pension plan surplus on both the full and partial wind-up of Ontario registered pension plans and that, in respect of a partial wind up, this would occur as at the date of the partial wind up.
Because of similarities between the Ontario legislation and the federal Pension Benefits Standards Act, 1985 (PBSA), questions have been raised about the effect of the “Monsanto” decision in the context of the PBSA.
OSFI has considered this issue carefully. Despite certain similarities between them, the federal Pension Benefits Standards Act, 1985 (PBSA) and Ontario’s pension legislation differ in a number of important respects. For example, unlike the Ontario pension legislation, the PBSA does not equate the concepts of wind-up of the pension fund and plan termination. Wind-up, which is the distribution of the assets of a pension plan (i.e. the pension fund) is not to be confused with termination, which is the cessation of crediting of benefits to plan members generally.
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Will OSFI require the plans to distribute surplus on a partial termination?
The PBSA does not automatically trigger the wind up of a pension fund including a distribution of surplus when a pension plan is terminated, either in whole or in part. It should be noted, however, that pension plan members affected by a partial plan termination may have certain rights under the terms of their pension plan in addition to those provided in the PBSA.
OSFI is currently implementing an approach consistent with this view as it considers a small number of partial termination reports that were filed with the Superintendent in recent years. Decisions on these reports had been deferred pending the decision in the “Monsanto” case. Depending on the particulars of each case, OSFI is following up with plan administrators to obtain relevant information, including the plan’s financial position and provisions contained in pension plan documents relevant to full and partial plan terminations. OSFI is communicating directly with the administrators of individual pension plans to obtain any required information and inform them of progress on reports that have been filed with OSFI but not yet approved.
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Will past partial plan terminations that have been approved by OSFI be re-opened in light of the “Monsanto” decision?
No. As a general rule and under the terms of the PBSA, OSFI does not have the authority to reopen or reconsider past decisions.
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What if the plan is ongoing but it provides that surplus belongs to plan members when the plan terminates?
Plans may provide that the members have an interest to surplus on plan termination. This interest however does not give them a specific interest to access or entitlement to surplus in an on-going plan and does not impact the ability of an employer to account for the surplus in determining its funding obligations.
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