Pension Law – The Supreme Court of Canada Puts an End to a Legal Saga
On September 13, 2013 the Supreme Court of Canada put an end to a lengthy legal saga in the area of pension law that had begun nearly ten years earlier1. The Court allowed the appeal of the Régie des rentes du Québec (the “Régie”) in concluding that recent declaratory legislation should be applied retroactively to a dispute involving the partial wind-up of a multi-employer pension plan.
The declaratory legislation modified the Supplemental Pension Plans Act, R.S.Q., c. R-15.1 (the “SPPA”) by retroactively invalidating any provision of a pension plan that effectively reduced or limited the value of the pension credits accumulated by members and beneficiaries based on an extrinsic factor, or that reduced or limited the extent of the employer’s obligations due to its withdrawal of employees from the plan or the plan’s wind-up.
Facts
The employers Multi-Marques Inc. and Canada Bread Company Ltd. (the “Employers”)2 were members of a multi-employer plan known as the Bakery and Confectionery Union and Industry Pension Fund (the “Plan”). Upon joining the Plan, the employees of two of the Employers’ divisions were credited by the Plan’s trustees with pension credits that were to be financed over a 15-year period through employer contributions.
However, the Employers subsequently closed both of those divisions, which led the Régie to issue two decisions in 2002 decreeing the partial wind-up of the pension plan for the divisions’ employees and ordering the Employers to pay some $5 million to remedy the deficit created by the recognition of the employees’ pension credits.
The actuarial reports on the partial wind-up of the Plan gave rise to a dispute between the Employers and the Régie. According to the Employers, sections 9.12 and 9.13 of the Rules and Regulations of the Plan allowed employee benefits to be reduced where they were based on past credits that had not yet been funded.
Chronology of the Proceedings
In response to the Employers’ challenge, the Régie submitted to a review committee the question of the compatibility of sections 9.12 and 9.13 of the Plan’s Rules and Regulations with the provisions of the SPPA. In its decision on April 14, 2003, the review committee concluded that the sections were incompatible with sections 211 and 228 of the SPPA and, pursuant to section 5 of the SPPA, were without effect. The review committee’s decision that the Employers were obliged to remedy the deficit was confirmed by the Administrative Tribunal of Québec and the Superior Court.
This initial dispute went as far as the Court of Appeal, which decided that sections 9.12 and 9.13 of the Rules and Regulations were in fact compatible with the SPPA and that full effect should be given them. It accordingly ordered the Régie to review its initial decisions. The Employers were therefore free to reduce the pension entitlement of the employees rather than remedy the deficit. The Supreme Court denied the Régie leave to appeal the Court of Appeal’s decision.
In anticipation of the Court of Appeal’s decision, the Quebec government was preparing amending legislation to counter its expected effects. On April 2, 2008, the same day the Court released its judgment, the government tabled in the National Assembly Bill 68, entitled An Act to amend the Supplemental Pension Plans Act, the Act respecting the Québec Pension Plan and other legislative provisions3. Two new provisions of the SPPA, sections 14.1 and 228, provided that no provisions of a pension plan may make benefits due conditional on extrinsic factors such that the obligations of an employer towards the plan are limited or reduced. A third provision, section 319.1, expressly provided that those two new sections of the Act were declaratory in nature. Bill 68 was adopted by the National Assembly on June 18, 2008.
Subsequently, following the Court of Appeal’s judgment ordering that the matter be remitted to the Régie to finalize the Plan’s wind-up in accordance with the Court’s findings, the Régie decided to apply the new provisions of the SPPA instead of complying with the Court of Appeal’s instructions to apply sections 9.12 and 9.13 of the Rules and Regulations.
The second phase of this case, culminating in the Supreme Court of Canada’s recent decision, thus began. The central issue was the retroactive application to the Employers of declaratory legislation.
The Supreme Court’s Decision
From the outset of its analysis, the Court made it clear that while the principle of res judicata, which precludes parties from re-litigating an issue in respect of which a final determination has been made as between them, does not preclude the legislature from negating the effects of that determination.
According to the Court, the legislature’s objective was to overrule the Court of Appeal’s decision of April 2, 2008 in order to protect the plan’s members and beneficiaries and ensure that the decision in question would not become a precedent that would be binding on the courts in pending and future cases.
In addition, the Court pointed out that declaratory provisions such as section 319.1 of the SPPA are an exception to the general rule that legislation is prospective, as they have an immediate effect on pending cases. And since the Court of Appeal had returned the file to the Régie in 2008, the Supreme Court concluded that the case was still pending.
The Supreme Court accordingly concluded that the Régie was correct in applying the provisions of the declaratory legislation and in refusing to allow the pension entitlements of Plan members on account of past service to be reduced pro rata to actual employer contributions.
The upshot of this entire saga is that the Employers must remedy any solvency deficit.
Conclusion
The effect of sections 14.1, 228.1 and 319.1 of the SPPA is to render illegal any provision of a pension plan that purports to reduce or limit the value of the accumulated rights of members or beneficiaries on account of an extrinsic factor, or to reduce or limit the extent of the employer’s obligations due to the withdrawal of employees from the plan or to the plan’s wind-up.
This case now being closed, it is evident that pension plans that have provisions in their plan texts that are similar to those of this Plan must amend them to bring them in line with sections 14.1 and 228.1 of the SPPA.
1 Régie des rentes du Québec v. Canada Bread Company Ltd., 2013 SCC 46.
2 Lawyers from Langlois Kronström Desjardins were involved in this matter until the Court of Appeal’s initial decision in 2008.
3 Journal des débats, vol. 40, No. 65, 1st Sess., 38th Leg., April 2, 2008.
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