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Supreme Court ruling has significant implications for Canadian employers with defined pension plans

By Workplace Staff
| www.cos-mag.com

On October 7,2010, the Supreme Court of Canada released its decision in the Burke v. Hudson’s Bay Co. case, which confirms the Ontario Court of Appeal’s decision that a proportionate share of pension surplus in a defined benefit (DB) plan need not necessarily be transferred to a successor plan established for transferred employees on the sale of a division of a company.

Impact of court ruling on Canadian businesses

According to Borden Ladner Gervais LLP (BLG), the outcome of the case has widespread implications for Canadian organizations that have defined benefit plans. In holding that actuarial surplus need not necessarily be transferred along with employees, the decision may be viewed as favourable to companies who are undergoing or contemplating corporate transactions.

However, the decision points to the need for additional due diligence in corporate transactions. The Court emphasized that its decision depended upon the text and context of the pension plan documentation at issue, and that each situation will have to be evaluated on a case-by-case basis. Whether actuarial surplus must be transferred depends upon who owns the surplus; that determination will often require companies to obtain surplus ownership opinions in cases involving the transfer of pension plan assets.

Background on the Burke v. Hudson’s Bay Co. case

From 1961, the Hudson’s Bay Company (HBC) provided a contributory defined benefit plan for its employees. In 1987, HBC sold its Northern Stores Division to the North West Company (NWC). This resulted in approximately 1,200 employees being transferred from HBC to NWC.

As part of the transaction, NWC agreed to establish a new pension plan providing the transferred employees with benefits at least equal to those provided under the HBC plan, and HBC transferred assets sufficient to cover the defined benefits of the affected employees. At the time of the transfer, however, the actuarial report showed that the HBC plan had a significant actuarial surplus. None of this surplus was transferred to the NWC plan.

With more than 750 lawyers, intellectual property agents, and other professionals working in six major Canadian cities, BLG is the largest Canadian full-service law firm focusing on business law, litigation and intellectual property solutions.  BLG provides bilingual services in virtually every area of law, and represents a wide range of regional, national and multinational organizations. For more information, visit

www.blg.com

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