Wind Up

• Author: Ari Kaplan, Mitch Frazer
• Pages: 496-547

496

CHAPTER 9

WIND UP

A. INTRODUCTION

1) Overview

a) Introduction

Eventually, a pension plan will run its course and be discontinued. A

pension plan “wind up” may occur for any number of reasons. The

employer may become insolvent, be impacted by a reorganization or

sale of a business, or simply wish to get out of the business of provid-

ing a pension plan. When a pension plan is wound up, the pension

fund must be liquidated of all its assets. Employee pension benef‌its

earned up to the wind-up date are typically discharged by rolling over

the assets associated with the benef‌its to either another pension plan,

to a locked-in retirement savings vehicle, or are used to purchase an

immediate or deferred annuity from an insurance company. If surplus

assets remain after all pensions are discharged, they too must be dis-

tributed to the proper recipients. With strict regulatory oversight, sur-

plus may be distributed to t he employer, the employees and pensioners,

or to both groups of stakeholders in conjunction with a surplus sha ring

and distribution agreement. If a def‌icit exists upon plan wind up, the

employer must rectify the def‌iciency. If the employer also is insolvent

and funds are not available to fund the def‌iciency, employees and pen-

sioners may have their benef‌its reduced.

Wind Up497

The Pension Benef‌its Act1(t he PBA) provides two methods by which

a pension plan may be wound up: by voluntary decision of the employer

or administrator, as the ca se may be, or by order of the regulator. There

have been attempts by employees to pursue other ways to terminate

a pension plan or all or part of the pension trust fund related to the

plan, without the consent of the employer or an order of the regulator.

Employee-initiated applications to compel the employer to wind up the

pension pl an2 or otherwise compel the dist ribution of trust assets from

an ongoing pension plan3 have all proved unsuccessful. These scen-

arios are discussed in this chapter, as is the grandfathered concept of

“partial” wind up, and the statutory and legal rights and obligations of

the employer, employees, and the plan administrator during the wind-

up process.

b) Def‌inition of “wind up”

The PBA def‌ines a “wind up” as “the termination of a pension plan

and the distribution of the assets of the pension fund” (in French,

“liquidation”).4 Note that the def‌inition combines two concepts — ter-

mination and distribution. Other jurisdictions, most notably the feder-

al jurisdiction, separate these two concepts, conceptually and literally.

In the Pension Benef‌its Standards Act, 19855 (PBSA), “termination” in

relation to a pension plan means “the cessation of crediting of benef‌its

to plan members generally,”6 and “winding up” means “the distribu-

tion of the assets of a pension plan that has been terminated.”7 While

the distinction can have legal signif‌icance in the interpretation of the

statute,8 it illustrates that the discontinuance of a pension plan is best

described as a processthan it is a single event, which commences with

a triggering stimulus punctuated by the cessation of further contribu-

tions and benef‌its and which continues until the last dollar is liquid-

1 RSO 1990, c P.8 [PBA].

2 Lomas v Rio Algom Ltd, 2010 ONCA 175 [Lomas]; McCann v Canada Mor tgage and

Housing Cor p, 2012 ONCA 243, leave to appeal to SCC refu sed, [2012] SCCA No

286 [McCann].

3 Buschau v Rogers Communicat ions Inc, 2006 SCC 28 [Buschau].

4 PBA, s 1, “wind up.”

5 R SC 1985, c 32 (2d Supp), as amended [PBSA].

6 Federa l (PBSA, s 2(1), “termination”). A pension plan is als o terminated where

the regist ration of the plan has been re voked or where the Superintendent has

declared the pl an terminated, in accor dance with PBSA, ss 29(1) & (2).

7 PBSA, s 2(1), “winding up.”

8 Cousins v Ca nada (Attorney Gene ral), 2008 FCA 226 at para 39 [Cousins].

PENSION LAW

498

ated from the pension fund.9 Employees cease accruing benef‌its as of

the effective wind-up date, and no new employees may join the pen sion

plan. The pension fund continues to be subject to the PBA during the

wind-up process until all of the assets have been disbursed.10

This chapter discusses the causes of termination, the process of

winding up, who is responsible for implementing the wind up, and the

manner by which the recipients of the distribution may receive their

benef‌its.

B. INITIATION OF WIND UP

1) Who May Initiate a Wind Up

a) Employer-initiated wind up

The PBA gives an employer the right to wind up a pension plan.11 This

does not mean that the employer’s right to wind up is unfettered.12 A

wind up can only be done in compliance with the PBA.13 Like the adop-

tion of a plan amendment, the right to pass a resolution winding up a

pension plan is usually vested in the board of directors of the company

sponsoring the plan and this would be stated in the plan text: “employ-

ers have the right to decide both whether to establish pension plans for

their employees and, subject to anything to t he contrary in t he pension

plan documentation, to end any pension plan they might establish.”14

An employer-initiated wind up may occur for many reasons, but

most commonly because the employer has been a party to a purchase

or sale of a business or has engaged in a n internal corporate reorganiza-

tion which demands other priorit ies, or seeks to access surplus existi ng

in the plan and winding it up is the most cost-effective manner of dis-

tributing it. There may be other motivations for an employer to wind

up a plan, which include any combination of the foregoing.15 Regard-

less of the reason, the employer has full discretion to wind up a plan

9 Nolan v Kerry (Canada) Inc, 20 09 SCC 39 at para 21 [Kerry].

10PBA, s 76.

11PBA, s 68(1). See also Manitoba (MPBA, s 26(4)), New Brunswick (NBPBA, s 6 0(1)),

Newfoundland and Labrador (NLPBA, s 60(1)), Nova Scotia (NSPBA, s 73(1));

Quebec (QSPPA, s 204).

12Lomas, above note 2 at para 65.

13 Ibid.

14Ibid at para 61. Als o see McCann, above note 2.

15For example, see FSCO Policy W 100-460 (Fal l 1994).