Ontario Court Of Appeal Holds Pension Plan Members Cannot Require Employer To Wind Up Plan

In a decision released on March 10, 2010, Lomas v. Rio Algom Limited,1 the Ontario Court of Appeal held that pension plan members cannot obtain a court order requiring the employer to wind up a pension plan. The court decided that such an order would conflict with the Supreme Court of Canada's decision in Buschau v. Rogers Communications Inc. ("Buschau"),2 and would be contrary to the legislative scheme of the Pension Benefits Act (Ontario) (the "PBA").3 The Rio Algom decision benefits employers as it underlines the exclusive rights of the employer and the Superintendent to initiate the wind up of pension plans.

The pension plan at issue (the "Plan") was originally created as a defined benefit ("DB") plan, but was later changed to a plan with both a DB portion and a defined contribution ("DC") portion. Plan members at the date of the change could elect to switch from the DB to the DC portion of the Plan, but members admitted thereafter were eligible only for the DC portion.

The applicant sought to represent the DB members of the Plan, and alleged that the employer had committed a number of serious breaches with respect to the DB portion. The applicant requested a variety of relief, including an order that the court wind up the Plan or, alternatively, that the court require the employer to initiate proceedings under section 68 of the PBA to partially wind up the Plan. As the DB portion was closed, and the Plan assets associated with that portion were alleged to be in excess of that required to fund the DB portion benefits, the plaintiff alleged that maintaining the DB portion served no good purpose.

After the proceeding was commenced, the Supreme Court of Canada released its decision in Buschau, holding that pensioners cannot invoke the rule in Saunders v. Vautier4 to compel the termination of a pension trust. The rule in Saunders v. Vautier provides that if all the beneficiaries in a trust are legally competent adults, they may by unanimous consent require the trustee to distribute to them the assets of the trust. Attempts to invoke this rule in the pension context have failed because the potential beneficiaries of a pension plan may include spouses, dependent children and designated beneficiaries, many of whom may not be ascertainable at the time the rule is invoked. Also, in many plans the employer itself will be a beneficiary by virtue of a right to surplus on wind up. The applicant in Rio Algom conceded that Buschau prevented the DB...