Law Times

Law TiMes • March 1, 2010 FOCUS Pension changes offer limited relief BY JUDY VAN RHIJN For Law Times sion law, but lawyers say each of them will have a limited impact. Th e Ontario govern- ment's solvency-relief policies, which aim to provide breathing space to plan sponsors during times of economic hardship, are hamstrung by the confl icts and diffi culties involved in put- ting them into eff ect. Similarly, the Ontario Court of Appeal's recent approach to partial windups of pension plans will have a limited life span because of proposed amendments to pension legislation. In June 2009, regulations in T the Pension Benefi ts Act were amended so that sponsors of defi ned-benefi t plans can, with the consent of members and retirees, spread their solvency- relief payments over a 10-year period instead of fi ve years. Th e change was retroactive to Sept. 30, 2008, with the aim of freeing up resources for op- erations, including payroll ex- penses. Th e amendments also promised greater transparency and more oversight of contri- bution holidays. Estimates at the time were that more than 4,100 pension plans were eli- gible for solvency relief. "It is widely acknowledged that the solvency-funding rules are unfairly abusive to employ- ers, especially if they are in fi nan- cial diffi culties," says Mark New- ton, a partner at Heenan Blaikie LLP in Toronto. "In 1987, the requirement to fund plans in an expedited manner was brought in to ensure the interests of plan members are served; however, the vast majority of employers are going concerns. Th e require- ment penalized 95 per cent of employers who now have to comply with short-term solven- cy-funding requirements for a long-term promise." Newton says the govern- ment's latest attempt at "tinker- ing" with the solvency-funding rules hasn't seen much use be- cause of the requirement for member consent, which presents he last six months have witnessed two signifi - cant changes to pen- to consent to the scheme may be on the wane. Complications with the recent solvency-relief policies mean few employers have been tak- ing advantage of them, says Mark Newton. diffi culties on a number of levels. Firstly, it's diffi cult for management to decide if that's the appropriate course. "Th ere is a little bit of confl ict inher- ent in this sort of relief because the employer wears two hats," Newton explains. "Th e em- ployer is the plan sponsor who created, can amend, and is re- sponsible for funding the plan. Th en there is the fi duciary hat usually worn by a committee or the board. Sponsors have to balance the two perspectives." Th en there are the logisti- cal problems. "Trying to com- municate with all the members and retirees is a very cumber- some process. Typically, what companies have to do, unless they have communications staff in-house, is engage a third party to design and draft a communications package. It's a very back-and-forth process, especially when the members are spread across Canada. Th ere are issues just with fi nding ad- dresses. Th e idea is almost in- conceivable for a large plan." Even if sponsors are able to contact the membership, New- ton is doubtful whether truly informed consent is possible. "Employees generally don't un- derstand pension funding. Th ey often don't even understand their own benefi t." Th ey may appreci- ate the economic realities of em- ployers who need a reduction in their overheads, but as economic jitters start to settle, the incentive Asked if he would ever rec- ommend using the package, Newton responds cautiously. "Th ere could be circumstances, for sure. It depends on the em- ployee population and how like- ly it is that you would get con- sent. A smaller population can have very active plan members with an active voice through an employee pension committee. However, where a company is in circumstances that are al- ready looking pretty grim, the members might be reluctant to consent. Funding over fi ve years might be more secure than funding over 10 years." Newton nevertheless be- lieves the option presented by the amendments could be use- ful in negotiating with a union. "If you are in a bargaining situ- ation, it could be one of many proposals to be used as a lever to get some other benefi t." Overall, Newton thinks something a little more radical is necessary. "It is a fact of life that solvency ratios go up and down wildly and it is unfair for employers to have to fund plans over such a short period. Th ere is pressure to step up funding rules because even the solven- cy-funding rules don't work. Th ere have still been numerous insolvencies since the changes were originally made to the leg- islation. Th e Ontario pension benefi ts guarantee fund has rarely if ever been solvent, so it has been unable to adequately deal with claims on the fund. A diff erent solution is needed to deal with the confl ict between Let us open right door for you the We specialize in Employment and Labour Law in Canada Kuretzky Vassos Henderson is a leading employment and labour law fi rm situated in the heart of Toronto. We are comprised of nine lawyers, all of whom specialize in the area of employment and labour law. We act for many prominent public and private sector employers as well as for individuals. Kuretzky Vassos Henderson LLP Our work includes extensive experience in the areas of: Wrongful dismissal • Human rights • Labour relations/Labour law/Collective barganing • Workplace health and safety • Sexual harassment • Employment standards • Employment contracts • Canada Labour Code • Class actions • Mediation/arbitration/ADR www.kuretzkyvassos.com • 416.865.0504 Kuretzky_LT_Mar2_09.indd 1 2/24/09 12:26:18 PM the rights of creditors, plan members, and employers that takes into account the ability of the employer to borrow." Th e second change to the law that aff ects those in the pension fi eld is the appeal court's deci- sion this January in the case of Hydro One Inc. v. Ontario (Fi- nancial Services Commission). "It's a very signifi cant deci- sion because there has been an understanding that in order for there to be a potential windup of a pension plan, there has to be a signifi cant event," New- ton points out. "Usually, that takes the form of a signifi cant restructuring with a large num- ber of members departing." In Hydro One, following a period of restructuring during which 126 employees lost their See New, page 13 PAGE 11 Been in Law Times? Want a record of it? Promote your law fi rm by ordering reprints of articles from the voice of the profession. For more information or to order reprints, please e-mail Gail Cohen at: gcohen@clbmedia.ca Reprints are great for: • Firm promotional material • Use on your website • Training & education • Suitable for framing $175 - $ www.lawtimesnews.com We provide a colour PDF and unlimited reproduction rights. 225

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