As far as pension matters go, dealing with surplus funds is a good “problem” for an employer to have. When excess assets remain in a pension fund after all pension benefits have been paid to plan members, that surplus may be paid to the employer, paid to plan members, or shared between the employer and plan members. The requirements for an employer to be paid 100% of pension surplus are strict. However, in the proper case, this is a viable option. I recently assisted an employer in its successful claim to be paid 100% of the surplus.
The employer, Crosby Canada Inc. (“Crosby”), requested payment of 100% of its pension plan’s surplus relating to a prior partial wind-up of the plan that occurred in 1999. The decision of the Financial Services Tribunal (“FST”) in Crosby Canada Inc. v. Ontario (CEO of FSRA) was made in June 2022. Following the FST decision, the Financial Services Regulatory Authority of Ontario (“FSRA”) approved Crosby’s application to receive the surplus.
In this case, the plan text clearly provided that Crosby was entitled to the surplus. However, the trust agreements that funded the plan were silent regarding surplus entitlement and some of the agreements did not explicitly state that the plan text was made part of the trust agreement. At issue before the FST was whether the plan text could still be interpreted alongside the trust terms to find that Crosby was entitled to the surplus.
Although the plan history and legal framework underlying this matter is complex, the case turned on a relatively narrow issue: under surplus case law where a pension plan is funded pursuant to a trust agreement, the plan text provisions may be used to determine whether the employer is entitled to surplus. However, this applies only if the text is “incorporated by reference” into the trust agreement and the text does not conflict with the trust terms. If there is any inconsistency between the plan text and trust agreement, the trust terms will override the plan text.
In 1987, one of Crosby’s predecessors established the Pension Plan for Salaried Employees of Mathews Conveyer (“Original Plan”). The Original Plan was a defined benefit pension plan, which – at inception – was funded pursuant a trust agreement with National Trust Company Limited (“1987 Trust Agreement”).
The 1987 Trust Agreement was amended and restated in 1993 (“1993 Trust Agreement”). Later, in 1999, a new trust agreement was entered into with CIBC Mellon Trust Company, which replaced the 1993 Trust Agreement (“1999 Trust Agreement”).
In 1999, the Original Plan merged with another defined benefit pension plan maintained by Crosby’s predecessor (“Merged Plan”). At the time of the merger, the Merged Plan was subject to a trust agreement with CIBC Mellon that was substantively the same as the Original Plan’s 1999 Trust Agreement.
Soon after this merger, Crosby’s predecessor closed one of its plants, prompting a partial wind-up of the Merged Plan. After the partial wind-up, once all affected members were paid their full pension benefits, a surplus related to the partial wind-up remained in the Merged Plan fund. At the time of the FST decision, the surplus was approximately $320,000.
Crosby filed an application with the Ontario pension regulator (now called FSRA) to have 100% of the surplus paid to Crosby on the basis that the Original and Merged Plan documents – being the current and historical plan texts and trust agreements – provided that Crosby was entitled to surplus.
In June 2021, FSRA refused to approve Crosby’s application, which prompted Crosby to request a hearing before the FST.
The sole issue before the FST was whether the Original and Merged Plan documents provided that Crosby was entitled to the surplus.
While FSRA accepted that both the Original and Merged Plan texts stated that Crosby was entitled to the surplus, FSRA argued that the 1993 and 1999 Trust Agreements did not explicitly incorporate those texts into the trust agreements and also were silent with respect to Crosby’s entitlement to surplus. As a result, those trust agreements could not be interpreted to provide that Crosby was entitled to the surplus.
Crosby argued that prevailing case law does not require that the 1993 and 1999 Trust Agreements include a clause explicitly incorporating the Original and Merged Plan texts into the trust agreements in order for the plan text to be relied on to establish surplus entitlement. The fact that the trust agreements made multiple and repeated references to the plan texts and did not contain any provisions that conflicted with Crosby’s entitlement to surplus was, in Crosby’s submission, sufficient. According to Crosby, when viewed together, the plan text and trust terms supported Crosby’s entitlement to surplus.
The FST unanimously agreed with Crosby, finding that a pension plan text may inform the way a trust agreement is interpreted where it is “inherently relevant and…[its] terms do not conflict with the terms of the trust”. The FST noted that the 1993 and 1999 Trust Agreements repeatedly referred to the plan texts, suggesting that “the two sets of documents were intended to be read together, as an integrated whole”.
On that basis, because the 1993 and 1999 Trust Agreements repeatedly referred to – and did not conflict with – the plan texts, the plan text and the trust agreements could be interpreted together to provide that Crosby was entitled to 100% of the surplus. According to the FST, “[t]o do otherwise seems to this Tribunal to be an artificial and unnatural interpretation” of the pension plan’s documents.
On this basis, the FST ordered that FSRA approve the payment of 100% of the surplus to Crosby.
An employer’s ability to receive all or part of pension plan surplus – both while the plan is ongoing or upon wind-up – is a complex process. While the rules are restrictive, there are situations where employers are legally entitled to the surplus assets and the Crosby FST decision is a good example of an employer being successful in asserting its right to pension plan surplus.
If your organization needs help determining its rights regarding surplus assets in a pension plan, feel free to contact me or one of the other pension law experts in our office.
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