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8 major trends in pension & employee benefits in Canada

By Kathryn M. Bush and Scott Sweatman
| www.cos-mag.com

The following eight trends are expected to have an impact on stakeholders in Canadian and cross-border pension and employee benefits plans ...

1. Major reviews of pension legislation in four provinces

– With the exception of Quebec, there have been two decades of only limited amendments to pension standards legislation across Canada. In 2007, Ontario, Alberta, British Columbia and Nova Scotia began significant reviews of their legislation. Reports from the Ontario Expert Commission and the British Columbia and Alberta panel were released in November 2008. The BC/Alberta panel concluded that “a fundamental reform of pension legislation is necessary to address these objectives.”

The Ontario government is now seeking feedback on “A Fine Balance: Safe Pensions, Affordable Plans, Fair Rules,” the final report from the Expert Commission on Pensions. The written comment period ends February 27, 2009. The government says it is committed to introducing legislation.

2. Impact of key ruling on funding of defined contribution benefits – Can defined contribution benefits be funded from surplus arising in a defined benefit plan? The Ontario Court of Appeal released a unanimous judgment in 2007 in

Kerry (Canada) Inc. v. DCA Employees Pension Committee

, which, among other things, determined that, after a plan conversion, it is permissible to use surplus assets in the defined benefit part of the pension plan to pay current service costs for the defined contribution of the plan. The Supreme Court of

Canada heard the appeal in November 2008 and reserved judgment.

3. Implications in rulings on surplus utilization

– Ripple effects continue from the Supreme Court of Canada’s 2006 decision in

Buschau v. Rogers Communications Inc.

, which held pension plan members did not have the right to demand a wind-up of the plan using old trust law principles. The court said it was up to the  regulatory authority to determine if a pension plan should be forced to wind-up.

The regulatory authority considered the issue and refused to order the wind-up. On appeal, the court overturned the decision of the regulatory authority and sent the issue back for redetermination. Leave to appeal to the Federal Court of Appeal has been filed. In 2007, the Ontario Superior Court of Justice rendered a decision, Sutherland et al. v. HBC, providing, among other things, it was permissible to add employees of

related companies to a company’s pension plan if its documents so permitted in order to use surplus. That decision is under appeal.

4. New regulatory guidance on partial windups

– The Ontario Superior Court upheld the decision of Ontario’s Financial Services Tribunal in Hydro One, giving guidance as to when the Superintendent in Ontario could order a partial wind-up, including ruling that the superintendent has discretion to order a plan wind-up by looking at a definable subgroup of plan membership. The decision is under appeal, however, it could lead to a greater risk of “forced” partial plan wind-ups.

5. Impact of key insolvency ruling on pensions

– The Ontario Court of Appeal in Harbert Distressed Investment Fund,

L.P. v. General Chemical Canada Ltd.

found the statutory lien under the Pension Benefits Act (Ontario) did not render the pension plan administrator a secured creditor for purposes of Canadian bankruptcy priorities.

6. Important pension plan mergers decision

– The Ontario Divisional Court in

Lennon v. Rockwell Automatic Inc.

approved a pension plan merger effected by a broad power of amendment and found that the merger did not offend the “exclusive benefit” language of the trust.

7. Pending impact of non-resident trust tax legislation

– New income tax legislation relating to non-resident trusts is expected to be enacted soon. It will generally apply where a Canadian resident (corporation, plan trust, or individual) contributes or invests in a trust that is not resident in Canada and could have adverse Canadian tax consequences for both non-resident trusts and their Canadian contributors.

8. Canadian impact of section 409A of the Internal Revenue Code

– Since January 1, 2005, non-qualified deferred compensation arrangements that do not meet the requirements of Section 409A of the Internal Revenue Code can result in significant penalties for U.S. taxpayers. A U.S. taxpayer can include a citizen of the U.S. resident in Canada (including members of a board of directors and consultants), a U.S. resident employed in Canada, and a Canadian citizen now resident in Canada who was previously employed in the United States.

Canadian employers should continue to work on identifying potential U.S. taxpayers in their deferred compensation plans and amending those plans where necessary to ensure that, if plans do apply to U.S. taxpayers, they comply with Section 409A.


Kathryn M. Bush is a partner, at Blakes’ Toronto Office where she practises in the Pension and Employee Benefits and Tax Groups. She is involved in all aspects of income tax, and pension and employee benefits law. Contact Kathryn at 416-863-2633 or kathryn.bush@blakes.com. Scott Sweatman practises in Blakes’ Pension and Employee Benefits and Tax Groups in both the Vancouver and Calgary offices. He is involved

primarily in the areas of employee benefits, pensions and executive compensation. His clients include corporations, boards of trustees of multi-employer plans, individuals and regulatory bodies. Contact Scott at 604-631-3385 or scott.sweatman@blakes.com.

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