When pension plans generate a surplus, who collects? It's a question that our courts and governments have been wrestling with recently. The courts have already ruled in favour of participants, employees, pensioners and their beneficiaries on the issue of ownership of surpluses in pension plans of companies that have wound up their activities. Now, with the class-action suits against Hydro-Québec and the Royal Bank, our courts are being asked to rule on active plans.
To clarify the current legal muddle, two governments have taken opposing measures to modernize their legislation on complementary pension plans. While Quebec alienated a million pensioners by making it impossible for them to benefit from these surpluses, Ontario demands all stakeholders to be treated fairly in surplus-sharing agreements.
Quebec reformed its legislation on complementary pension plans last year; the idea was to fill the legal void surrounding the ownership of active pension-plan surpluses, since the risk of actions being brought against employers was high. Figures compiled by the Régie des rentes du Québec suggest that between 1984 and 1997, employers appropriated (with impunity) surpluses of about $2.4 billion in the form of contribution holidays, while setting their sights on another $4 billion. A major pension association says one out of six pension plans in Quebec is affected by such holidays.
Quebec devised a legislative solution to the problem by tying the distribution of surpluses to an agreement between an employer and a union (or an association of employees) and subordinating the rights of pensioners and nonunion employees to it. Quebec thus brushed aside the decisions of the courts as well as the Supreme Court, which ruled in 1995 that participants, employees, pensioners and their beneficiaries were entitled to the surpluses. The decisions in the Singer and Simonds cases recognized that the employer's share is part of an employee's overall salary and that employer contributions constitute deferred pay. But these decisions concern only closed or terminated plans. For active plans, Quebec sanctioned the arguments of employers and unions, agreeing that the employer and active participants are responsible for deficits.
Pensioners, who account for 47% of participants, maintain that they built up 50% of pension plan assets. They demand to have a say in how their share of the surpluses is divided and contest the fact that their rights are subordinated to an employer-union agreement to which they are not a party. They say this section of Bill 102 implies that the pensioners' consent is given, and that they also lose the right to launch actions similar to the Hydro-Québec action. Pensioners also claim that under the country's Charter of Rights and Freedoms, a party to a contract cannot be excluded from negotiations.
Last year, opponents of Bill 102 received support from associations representing a million pensioners. The Ontario government decided no one should be excluded, at least initially. In July 2001, Ontario Finance Minister Jim Flaherty launched a public consultation to set new rules for surplus sharing. He said recent court rulings limited the capacity of employers and employees for negotiating agreements in this respect. He also indicated that the new context requires a reform of legislative measures governing the negotiation of these agreements.
Thus, unlike Quebec, Ontario has adopted the principle that surplus sharing should be submitted for preliminary approval to employers, union and nonunion employers, as well as pensioners.
The pension issue is being debated at a time when a number of class-action suits are being filed to establish case law on the ownership of pension-plan surpluses. In Quebec, Hydro-Québec's provincial pensioners association was authorized to mount a class-action suit against the government corporation to claim its share of a $160-million surplus. Hydro-Québec's plan first began to record a surplus in 1993; in 1996, the company began to dip into the funds by decreasing its contribution rate. This enabled it to recoup wage concessions it had made.
In a class action against the Royal Bank, pensioners are as-serting their right to an estimated $150-million surplus. This suit is being spearheaded by 250 pensioners representing some 2,500 employees who had been paying into the plan when it was terminated in 1989. Based on the Singer and Simonds cases, the plaintiffs' lawyers are arguing that the Trust Royal plan (before it was acquired by the Royal Bank) was intended for the then-contributing members and their successors in interest.
In the end, however the debate is about much more than surplus entitlement. Our courts and governments will have to establish whether employer contributions constitute an integral part of employee remuneration. After that has been determined, everything else should fall into place.
