Quebec Employers Face Additional Costs
By: Natalie Bussière
Recent decisions by the Tribunal administratif du Québec (TAQ) may have an impact on multi-employer plans with members in Quebec. Natalie Bussière, of Blake, Cassels & Graydon, has a look at two of these decisions and the positions taken on them by the Régie des rentes du Québec and the TAQ.
In the last few months, the Tribunal administratif du Québec (TAQ) has rendered two decisions which may have an impact on the funding of multi-employer pension plans (MEPPs) with members in the province of Québec. Even though one of the decisions is being challenged by way of petitions for judicial review, plan administrators should be aware of the positions taken by the Régie des rentes du Québec (Régie), the agency enforcing the Supplemental Pension Plans Act1 (SPPA), and the TAQ, which hears appeals of the decisions rendered by the Régie2, in these two decisions.
The Intersan Decision
On July 23, the TAQ rendered a decision in Intersan Inc. and Conseil des fiduciaires du Régime transcanadien de retraite v. Régie des rentes du Québec et al. (Intersan Decision). The facts can be summarized as follows:
In March 1999, Intersan shut down some of its commercial business in the greater Montreal area and terminated all its employees covered by the bargaining certificate held by the United Steelworkers of America, Local 15377 (Steelworkers) as of April 30, 1999, thus triggering partial termination of the Canadian Wide Industrial Pension Plan (CWIPP – in French the Régime transcanadien de retraite). Intersan and its employees covered by the Steelworkers bargaining certificate therefore ceased to participate in CWIPP as of April 30, 1999. On or about November 20, 2002, the Régie rendered a decision in which it partially terminated the CWIPP, a MEPP in which Intersan Inc. (Intersan) participated as an employer.
Following these events, the Board of Trustees of CWIPP established the benefits to which Intersan’s terminated employees were entitled in accordance with the rules and regulations of CWIPP.
Section 8.03 of the rules and regulations of CWIPP allows for a reduction of the members’ benefits if the plan is underfunded. According to the facts disclosed during the judicial process, the plan was underfunded when the partial termination occurred. The Régie refused to authorize the reduction of benefits because, in its opinion, such a reduction would be prohibited by the provisions of the SPPA. This decision was challenged.
The experts heard by the TAQ established that the Pension Benefits Act (Ontario)3 (PBA) does permit the reduction of benefits granted to members under the circumstances which prevailed in the case. The board of trustees of CWIPP could, therefore, have reduced the benefits of an Ontario member. However, the Régie pleaded that such a reduction of benefits was not permitted under the SPPA. It said Section 211 of the SPPA would grant the members the right to receive all benefits accrued under the plan, irrespective of the funding level.
Section 211 of the SPPA reads:
Every member affected by the termination of a pension plan who was still active on the date of termination is entitled, in respect of the service credited to him under the plan to the date of termination, to the value of the normal pension, including benefits ancillary to any pension to which he would have been entitled if he had retired on the day preceding the date of termination.
Where the termination of the plan is brought about by the division, merger, alienation or closing down of an enterprise or part of an enterprise, the same applies to every member whose active membership in the plan ceased during the period extending from the date the members were informed of the event and the date of termination.
The amount of the pension shall, where the pension plan provides that it is to be calculated according to the progression of the member’s remuneration, be determined so as to take the progression into account until the date of termination, unless the plan provides expressly that it must be taken into account beyond the date of termination.
The Régie further argued that Sections 228 and 229 of the SPPA create a debt equal to the amount required in order to fully fund the benefits awarded to the members under Section 211 of the SPPA. Sections 228 and 229 provide:
228. The amount to be funded to ensure full payment of the benefits of the members or beneficiaries affected by the withdrawal of an employer from a multi-employer pension plan or the termination of a pension plan shall constitute a debt of the employer. The amount to be funded shall be established at the date of termination.
If, at the date of termination, the employer has failed to pay contributions into the pension fund or to the insurer, as the case may be, the debt shall be the amount by which the amount to be funded exceeds such contributions.
In the case of a multi-employer plan, this section applies to every employer who is a party to the plan and to whom a group of benefits under subdivision 3 consisting of the benefits of the members or beneficiaries affected by the withdrawal or termination pertains.
229. Any amount owed by an employer under section 228 must, upon its determination, be paid into the pension fund or to the insurer, as the case may be. However, the Régie may, on the conditions it determines, allow any employer to spread the payment of such amount over a period of not more than five years.
Any amount not paid into the pension fund or to the insurer shall bear interest from the date of default, at the rate determined pursuant to section 61 that was applicable at the date of termination.”
Intersan and the Board of Trustees of CWIPP were of the opinion that a pension plan registered outside of Québec could reduce the benefits of members affected by a partial termination as such a reduction would constitute a measure related to the solvency of a pension plan. Section 53 of the General Regulation on Supplemental Pension Plans4 (General Regulation) provides that “a pension plan registered under an equivalent legislation may fulfill the obligations of the equivalent legislation with regard to solvency […]”.
Since CWIPP is registered in Ontario, Intersan and the board of trustees of CWIPP argued that it could, therefore, fulfill the obligations stipulated by the PBA with regard to solvency, which would include the possibility to reduce members’ benefits. In such a case, Sections 211 and 228 of the SPPAwould not apply to CWIPP under the present circumstances.
Expert witnesses were heard for each of the parties. However, the TAQ adopted the opinion of the expert of the Régie to the effect that the possibility to reduce members’ benefits was not a measure related to the solvency of a pension plan. Therefore, the wording of Section 8.03 of CWIPP could not be redeemed by the exclusion found in Section 53 of the General Regulation.
The TAQ concluded that Section 8.03 of the rules and regulations of CWIPP cannot apply in the province of Québec and that all the benefits accrued by the members must be paid even though there is a deficit in the plan and such benefits are not fully funded.
The Multi-Marques Decision
Another decision involving a MEPP was rendered by the TAQ on June 15, 2004. In Sean Kelly v. Régie des rentes du Québec et al. (Bakery Decision), the TAQ had to examine other arguments submitted by the board of trustees of a Defined Contribution and Defined Benefit pension plan.
The Bakery and Confectionery Union and Industry Canadian Pension Fund (the Pension Plan) is a DC and DB MEPP. Many employers have joined the Pension Plan over the years and, between 1996 and 1998, some of the employers party to the Pension Plan laid off or otherwise terminated the employment of members of the Pension Plan. The Pension Plan provided for the granting of past service credits if such credits were fully funded. If an employer withdrew from the Pension Plan when there was a deficit, the benefits paid to the members would only include the current service and the past service credits which were effectively paid for by the employer, according to the rules and regulations of the Pension Plan.
Once again, the Régie took the position that the members must be credited with all of their accrued benefits, including the past service credits whether or not such credits had been paid for and notwithstanding the wording of the Pension Plan which “suspended” the granting of the benefits to their full payment. The relevant provisions of the rules and regulations were, therefore, deemed to be of no effect in the province of Québec as they would conflict with the provisions of the SPPA.
The TAQ agreed with the Régie and concluded that the provisions of the rules and regulations providing for the possibility to reduce benefits to reflect the actual funding of past service credits granted to members could not apply in Québec as they were contrary to the intention of the legislation in Sections 211 and 228 of the SPPA. According to the TAQ, the fact that Section 228 of the SPPA creates a debt equal to the amount necessary to fully fund the benefits granted to members would necessarily render null and void any provision of a pension plan providing for a reduction of benefit if the plan is underfunded. The fact that the Pension Plan is a DC plan, where, by definition, the liability of the employer is limited to the payment of its contribution in accordance with the wording of the Pension Plan, was put aside in its entirety by the TAQ.
Three motions for Judicial Review were filed against this decision. These motions allege that the interpretation given by the TAQ to Sections 211 and 228 of the SPPA is erroneous as it, among other arguments, contradicts the provisions of the SPPA creating DC plans. They also argue that the TAQ erred when it decided to assimilate a DC pension plan into a DB pension plan under Sections 211 and 228 of the SPPA.
It remains to be seen whether or not the Superior Court will revise the Bakery Decision. Meanwhile, it clearly appears that both the Régie and the TAQ will resist strongly any attempt to grant benefits under suspensive condition of payment of the cost by the employer, which is done in some DC and DB MEPPs.
If the position of the Régie and the TAQ is maintained, all DC and DB MEPPs will have to ensure that no benefits are granted to members unless they are immediately paid for under pain of creating an unlimited liability for the employers party to the Pension Plan.
The situation is also problematic for MEPPs because the decisions rendered by the TAQ clearly indicate that a different set of rules applies to the members in the province of Québec when the time comes to determine the costs associated with the inclusion of additional members into a pension plan. Unfortunately, the workforce in Québec may suffer the consequences of these decisions as many employers will think twice about joining MEPPs or permitting employees in the province to join an existing MEPP.
Natalie Bussière is with Blake, Cassels & Graydon in Montreal.
1. R.S.Q., c. R-15.1.
2. Please note that the SPPAprovides for an internal review process by the Régie before an appeal can be filed with the TAQ
3. R.S.O. 1990, c. P.8
4. C. R-17, r. 1
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