Law Times

Page 12 August 19, 2013 Law Times • FOCUS Draft rules on asset transfers between plans 'onerous' BY CHARLOTTE SANTRY regulatory details to emerge. A note posted alongside the 2013 draft regulations explains their aim to ong–awaited draft regulations "facilitate the restructuring of pension on transferring assets between plans affected by corporate reorganizapension plans would impose tions, while protecting benefit security "onerous" obligations on emfor plan members and pensioners." ployers, according to a lawyer specialThe legislated amendments "should izing in pensions and corporate transallow more efficient and timely transactions. But if implemented, they'd actions and simplify the regulatory apalso introduce greater flexibility for proval process," which "in turn should companies that wish to move assets Susan Seller reduce administrative and compliance to another plan, says Bennett Jones costs as well as help plan members to consolidate LLP partner Susan Seller. The Ontario Ministry of Finance published the pension benefits in a single plan." Seller says the regulations introduce several new draft regulations in July 2013 as part of the broader requirements for employers looking to transfer assets. pension restructuring launched by the government. First, "they put specific timelines on the various They concern asset transfers between pension plans affected by corporate reorganizations, includ- steps in the process," she says. Notices must be sent ing the sale of a business. If approved, they'd lead to to members within 90 days and an application for amendments to ss. 80 and 81 of the Pension Ben- the superintendent's consent must be filed within efits Act. The need for change was highlighted back 180 days after the effective date of the transfer. "Administrators who need more time have the abilin 2003 when the Ontario Court of Appeal released ity to request filing extensions and these may be perits decision in Aegon Canada Inc. v. ING Canada Inc. In this case, two pension plans had merged for ad- mitted, particularly if it's a large transfer," Seller notes. "But by and large, they will have to reflect the ministrative reasons, but the assets and liabilities of timelines," she adds. each had been maintained separately. At the same time, a formula has been provided to The surplus from one plan, which was subject to a protect the assets and solvency status of the two plans. trust, was used to fund liabilities from the other. "It makes it much easier to advise clients as to what The court ruled that surplus assets derived from a pension plan subject to a trust couldn't be used the terms of the asset transfer have to be," says Seller. Notices must be sent to trade unions and pension to fund liabilities derived from another plan that advisory committees. This is significant as unions wasn't subject to that trust. Legislation in 2010 then established a broad will be given a very good picture of what the transfer framework to clarify the rules over pension as- will look like and who it will affect. "This really inset transfers, but it has taken some time for the creases their ability to scrutinize," says Seller. L Law Times MaxiMize your clients' personal tax and estate planning efforts New editioN WEalth Planning StRatEgiES fOR CanaDianS 2014 CHriSTine VAn CAuwenBergHe Your clients are at different stages in their lives and they rely on you to give them the right financial and tax advice. How can you be ready with the right answers for the wide variety of life situations that you will encounter? Wealth Planning Strategies for Canadians 2014 is the answer. This convenient resource is organized by life stage – so you are ready with answers as soon as your client walks through the door. 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There's no requirement to transfer assets to the new party and some companies may opt out if the draft regulations are implemented. However, the government has also worked some additional flexibility into the draft regulations. For example, the benefits offered by the receiving plan don't have to be exactly the same as those in the original pension plan as long as the commuted value is the same. The regulations are out for consultation until Sept. 9. People can e-mail comments to pension.feedback@ontario.ca. LT Kidd shows courts prepared to review surplus-sharing deals BY CHARLOTTE SANTRY Law Times W hat happens when a pension plan with a surplussharing agreement is wound up and the surplus unexpectedly vanishes? This was the unusual situation in Kidd v. The Canada Life Assurance Co. Canada Life declared a partial windup of its pension plan in 2003 that affected members who were terminated or retired as a result of the integration of Canada Life and Great-West Life Assurance Co. Pension plan members launched a lawsuit to determine, among other issues, who owned the estimated surplus in the plan. A settlement agreement was reached that would give about 70 per cent of the surplus to the members involved in the claim. They were told this was worth around $55 million. But after the agreement received court approval, the economy crashed, meaning the liabilities of the pension plan increased and the anticipated surplus diminished. Adding to the problems, a greater than anticipated number of partial windup members had chosen to take an annuity. An amended settlement was rejected by a group of class members on the basis that Canada Life stood to gain from it disproportionately. In a decision released on March 28, 2013, the Ontario Superior Court of Justice ruled the amended settlement was "substantively, procedurally, circumstantially, and institutionally unfair." The settlement would have allotted about $4 million for one group of class members in the first round of distribution. A $15-million cap on the second redistribution of the surplus was "a disguised way for Canada Life to increase its share of the surplus from the 30.34 per cent originally allocated to it," wrote Justice Paul Perell. Since Canada Life had launched a national campaign to seek member approval of the settlement, it had a "moral duty" to fully share in the disappointment, Perell added. He continued: "To show itself as the better corporate citizen, Canada Life cannot simply wash its hands of the matter and say it never guaranteed there would be a significant surplus and that it has exculpated itself from liability by making no promises. "There is a circumstantial unfairness if Canada Life does not adequately share the pain of the disappointment of its inaccurate estimates of the surplus." The proposed date of Dec. 31, 2014, to reassess the surplus position of the assets and liabilities in the plan was too early to allow economic conditions to rebound, Perell said, recommending that Dec. 31, 2017, would be more fair. Brian Radnoff, a partner at Lerners LLP, says the case is unique because of the way the settlement was impacted so severely by the economic downtown. "It's difficult to say that anyone did anything wrong here," he says. It shows that "you have to be very careful when you're arranging a settlement to ensure that the assumptions of the settlement will actually occur," he adds. While it is impossible to forecast financial conditions with absolute certainty, problems can be prevented by picking a date to crystallize the damages.  "Instead of making a settlement contingent on the future value of the pension fund, plaintiffs have an incentive, particularly after this case, to try to get an agreement on a fixed amount of surplus as of a particular date as opposed to settling on the basis of a future valuation of the surplus which might, as happened in this case, change drastically with a changing economic climate," says Radnoff. This is likely to be difficult as most defendants won't want to settle in this manner.  However, from the plaintiff's perspective, a fixed amount avoids the problem that arose in this case. Lyle Teichman, senior pensions counsel at Stikeman Elliott LLP, says plan sponsors need to be aware that "the court is prepared to review a surplus to make sure it's fair and equitable to all parties." He adds: "Courts won't approve a deal just because it's the best of two possible outcomes." The take-away lesson, he suggests, is that plans should "move quickly" to implement an approved settlement. An appeal is scheduled for Oct. 9. LT

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