Ontario government freezes proposed pension surplus rules

(November 27, 2002) It appears the Ontario government has done an about-face with respect to pension surplus distribution, announcing that it has frozen legislation that would have amended the Pension Benefits Act.

The announcement came last week, shortly after the Ontario Court of Appeal released its decision in the Monsanto case, a ruling that effectively awarded each of the company’s 146 laid-off employees a chunk of Monsanto’s surplus. The decision — which states employees have a right to negotiate a portion of a firm’s pension surplus during a partial wind-up — countered the government’s proposed legislation.

In response to the Monsanto decision, Ontario Finance Minister Janet Ecker announced that sections of Bill 198 affecting pension surpluses will not be proclaimed. “In light of the Ontario Court of Appeal decision today in the Monsanto case, the Ontario government will not proclaim the sections of Bill 198 pertaining to this issue until we complete the consultations on measures to ensure the rights of pensioners are protected,” the finance ministry said in a statement.

News of the reversal in the government’s position was met with dismay by the Association of Canadian Pension Management (ACPM). Priscilla Healy, a principal with Towers Perrin and chair of the advocacy and government relations committee of ACPM, says, “There was a grave misunderstanding of the impact of the bill,” which the association considers “very good legislation that will be very beneficial to the pension industry.”

Healy blames the media for negatively portraying the sections of Bill 198 that affect pension surplus distribution. “The media seems to think that the legislation would allow employers to withdraw all the surplus. This is not the case. What the legislation does really is encourage surplus sharing,” Healy says.

She says that the amendments to the bill were trying to deal with fallout from Monsanto. “The legislation was anticipating the Monsanto ruling and trying to address the huge problems owing to the Monsanto ruling.”

Healy says the ACPM will continue to lobby for proclamation of the bill. “We will certainly try to encourage the government to proceed with the legislation and be supportive as we can. I hope the government will proceed with the regulations and that will alleviate some of the concern.”

According to Michael Mazzuca, a partner with Toronto law firm Koskie Minsky, the ACPM need not worry. He says that the government’s carefully worded statement indicates that proclamation of sections dealing with partial wind-ups is the only thing that will not occur. He says the wording leaves the door wide open for the government to pass the bill.

“I think it’s just a stalling tactic on their part,” says Mazzuca. “They’re going to pass the legislation. Once they pass it, it becomes extremely difficult to change it.”

Mazzuca says the only way to truly meet the needs of employees is to consult with them before the passing of the bill. He suggests the pension components of the bill be severed from Bill 198, and that the province “submit that to a true consultation process.”

Mazzuca suspects that the legislation will be proclaimed “after the furor dies down.” He says at that point, Bill 198 will be open to challenge. “I have never seen legislation that proposed to circumvent a rule of law and this legislation does this on several occasions. There will no doubt be a legal challenge to it.”