By Angela Marion Lee
OTTAWA — The long-awaited recent Supreme Court of Canada decision granting laid-off Ontario workers the right to share any surplus in their company's pension plan will discourage firms from sponsoring defined benefit plans and further supports the need for legislative reform, industry experts say.
In its ruling in Monsanto Canada Inc. vs. Ontario Superintendent of Financial Services, the court said that 146 employees terminated by a Monsanto Canada Inc. reorganization between 1997 and 1998 are entitled to a chunk of the C$19.1 million (US$14.3 million) actuarial surplus existing at the time of the plan's partial windup. The figure owed is estimated to be C$3.1 million.
"There's a perception that there's an asymmetry of risk in terms of DB plans, said Randy Bauslaugh, a lawyer with the Toronto office of Blake Cassels & Graydon, who represented the Association of Canadian Pension Management, which represents private and public pension plan sponsors and was a party to the appeal along with Monsanto.
"Employers feel they're responsible for making sure that there's enough money to fund the promised benefits. If they put too much in, they're at risk of losing it. They're looking at switching to a DC plan, where they have no downside risk," he said.
According to the Financial Services Commission of Ontario, there have been 281 partial windups in the province that involve 208 pension plans with a funding surplus since 1992. Partial windups are terminations of only a portion of a pension plan, often because of bankruptcy or corporate restructuring.
The ruling is "a very problematic decision because it will end up discouraging plan sponsors from funding the plan and will encourage a lot of them to run right at the margin," said Patrick Walsh, president of SEI Investments Canada, Toronto.