Wind Up

• Author: Ari N. Kaplan
• Profession: Partner, Koskie Minsky LLP. Faculty of Law, University of Western Ontario
• Pages: 502-551

CHAP TER 9

WIND UP

A. INTRODUCTION

1) O v er v ie w

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 em-

ployer may become i nsolvent, be imp acted by a reorgan ization or sale of

a business, or simply wi sh to get out of the business of providing a pen-

sion plan. When a pension plan is wound up, the pension fund must be

liquidated of all its as sets. Employee pension benef‌i ts earned up to the

wind up date are discharged by rolling over the assets associated with the

benef‌i ts to either anot her 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 ass ets remain after al l pensions are

discharged, they too must be distributed to t he proper recipients. Sur-

plus may be distr ibuted to the employer, the employees and pensioners,

or to both groups of stakeholders in conjunction with a surplus sharing

and distribution agreement. If a def‌i cit exists upon plan wind-up, the

employer must fund it. If the employer also is insolvent, employees and

pensioners may be required to have their benef‌i ts reduced.

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Wind Up 503

The Pension Benef‌i ts Act1(t he PBA) provides two method s by which

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

ployer or by order of the regulator. There is also, potentially, a third

manner by which to termi nate all or part of a pension trust fund related

to a pension plan, without the consent of the employer or the in sistance

of the regulator. This is where pension plan benef‌i ciaries collectively

attempt to terminate a pension tr ust and compel the distr ibution of

assets to the benef‌i ciaries, pursuant to the rule in Saunders v. Vautier.

All three scena rios are discussed in this ch apter, as is concept of the

“partial” wind-up and the corresponding st atutory and legal r ights and

obligations of the employer, employees, and the plan administ rator.

b) D ef‌i nition of “wind up”

The PBA def‌i nes a “wind up” as “the termi nation of a pension plan and

the distribution of the assets of the pension fund” (in French, “liquida-

tion”).2 Note that the def‌i nition combines two concepts — termination

and distribution. Other jurisdict ions, most notably the federal juris-

diction, separate these t wo concepts, conceptually and literally. In the

Pension Benef‌i ts Standards Act, 19853 (PBSA), “termination” in relation

to a pension plan means “the cessation of crediting of benef‌i ts to plan

members generally,”4 and “winding up” means “the di stribution of the

assets of a pension plan th at has been termin ated.”5 It is useful to com-

pare the def‌i nitions in these two jurisd ictions in order to illust rate that

the discontinuance of a pen sion plan is be st described as a process than

it is a single e vent, which commences with a trigger ing stimulus punc-

tuated by the cess ation of further contr ibutions and benef‌i ts and which

continues until the la st dollar is liquidated from the pension fund.

This illustration also serves to encapsulate this chapter, which is

a discussion of the cau ses of terminat ion, the process of winding up,

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

manner by which the recipients of the distribution may receive their

benef‌i ts.

1 R.S.O. 1990, c. P.8.

2PBA, s. 1, “wind up.”

3 R.S.C. 1985, c. 32 (2d Supp.), as amended.

4 Federal (PBSA, s. 1, “termin ation”). A pension plan i s also terminated whe re

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

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

5Ibid., s. 1, “windin g up.”

PENSION LAW504

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.6 This

right is unfettered and no reasons or grounds need exist in the PBA for

an employer to declare a plan termin ated. Like the adoption of a plan

amendment, the right to pass a re solution winding up a pen sion plan is

usually vested in t he board of directors of the company sponsoring the

plan and this would be st ated in the plan text.

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

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

sale of a business or has engaged in an internal corporate reorgan iza-

tion which demands other pr iorities, or seeks to acces s surplus exist-

ing in the plan and w inding it up is the most cost-effect ive manner of

distributi ng it. There may be other motivations for an employer to wi nd

up a plan, which include any combination of the foregoing.7

An employer might be constrained in w inding up a pension plan if

the employer is contractually obligated to maintain it, for example, if

the employer was a buyer of a business and it undertook to the seller

in the purchase t ransaction agreement to not wind up the plan for a

certain period of time or, alternatively, if the employer is a party to a

collective agreement that requires the employer to make pension con-

tributions during the term of that agreement. Such constraints would

be unlikely to interfere with the unfettered right, contained in the PBA,

conferred on the employer to wind up the plan, which is permissive.

Where an employer propose s to wind up the pla n, that t riggers the

beginning of t he wind up process under the PBA. An employer may

not “conditionally” propose to wind up a plan nor make the wind up

subject to regulatory approval of the w ind up report, which necessarily

follows the wind up proposal. The Superintendent has no authority to

consider a conditional wind-up report.8

6PBA, s. 68(1). See also Manitoba (MPBA, s. 26(4)), New Bruns wick (NBPBA, s.

60(1), Newfoundland and Labra dor (NLPBA, s. 60(1)), Nova Scotia (NSPBA , s.

73(1)); Quebec (QSPPA, s. 204).

7 For example, see FSCO Policy W 100-4 60 (Fall 1994).

8 FSCO Policy W100-105 (Winter 1995).