Wind up

AuthorAri Kaplan/Mitch Frazer
1) O v er v i ew
a) Introduction
Eventually, a pension plan will run it s course and be discontinued. A
pension plan “wind up” may occur for any number of reasons. The
employer may become insolvent, be aected 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 i s wound up, the pension
fund must be liquidated of all its a ssets. Employee pension benef‌its
earned up to the wi nd-up date are typically discharged by rolling over
the assets associated with the benef‌it s to either another pension plan,
to a locked-in retirement savings vehicle, or are used to purchase an
immediate or deferred annuity f rom an insurance company. If surplus
assets remai n after all pensions are disch arged, they too must be distrib-
uted to the proper recipients. With strict regulatory oversight, surplus
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 def‌icit exists upon plan wind up, the
employer must rectify the def‌iciency. If the employer is also insolvent
and funds are not available to fund t he def‌iciency, employees and pen-
sioners may have their benef‌its reduced.
The Pension Benef‌its Act1 (th e PBA) provides two methods by which a
pension plan may be wound up: by voluntary decision of the employer or
administr ator, as the case may be, or by order of the regul ator. There have
been attempts by employees to pursue other ways to term inate a pension
plan or all or part of the pension trust fund related to the plan, w ithout
the consent of the employer or an order of the regulator. Employee-initi-
ated applications to compel the employer to wind up the pension plan 2 or
otherwise compel the distribution of trust assets from an ongoing pen-
sion plan 3 have all proved unsuccessful. These scenarios are discu ssed
in this chapter, as is t he grandfathered concept of “partial” wind up, and
the statutory and legal right s and obligations of the employer, employees,
and the plan administrator during the wind-up proces s.
b) Def‌inition of “wind up”
The PBA def‌ines a “w ind up” as “the termination of a pension plan and
the distribution of the assets of the pension fund” (in French, “liquida-
tion”).4 Note that the def‌inition combines two concepts — termination
and distribution. Other jur isdictions, most notably the federal juris-
diction, separate these t wo concepts, conceptually and literally. In the
Pension Benef‌its Standards Act, 1985 (PBSA)5, a “termination” in relation
to a pension plan includes a situation where there i s “a cessation of cred-
iting of benef‌its to the plan member s”6 and “winding up” means “the
distribution of the assets of a pension plan that has b een terminated.”7
While this di stinction can have legal signif‌icance in the interpretation
of the statute,8 it illust rates that the disconti nuance of a pension plan
is best described as a process than i s a single event, which commences
with a trig gering event punctuated by the cessat ion of contributions
and benef‌its and which continues unti l the last dollar is liquidated from
the pension fund.9 Employees cease accru ing benef‌its as of the eective
1 Pension Benef‌it s Act, RSO 1990, c P.8 [PBA].
2 Lomas v Rio Algom Ltd, 2010 ONCA 175 [Lomas]; McCann v Canada Mor tgage
and Hous ing Corp, 2012 ONCA 243, leave to appeal to SCC refused, [2012]
SCCA No 286 [McCann].
3 Buschau v Rogers Communicat ions Inc, 2006 SCC 28 [Buschau].
4 PBA, above note 1, s 1, “wind up.”
5 Pension Benef‌its Sta ndards Act, 1985, RSC 1985, c 32 (2d Supp), as amended [PBSA].
6 Federal (PBSA, ibid, ss 2(1), “termination” and 29(2.1)). A pension plan is also
terminat ed where the registration of t he plan has been revoked or where the
Superintendent h as declared the plan ter minated, in accordance w ith PBSA,
ss 29(1) & (2).
7 Ibid, s 2(1), “winding up.”
8 Cousins v Canada (Attorne y General), 2008 FCA 226 at para 39 [Cousins].
9 Nolan v Kerry (Canada) Inc, 2009 SCC 39 at pa ra 21 [Kerry].
Wind Up 511
wind-up date, and no new employees may join the pension plan. The
pension fund continues to be subject to the PBA du ring the w ind-up
process until all of the assets have been disbursed.10
This chapter explain s the causes of termination, the process of
winding up, who is responsible for implementing the w ind up, and the
manner by which the recipients of the d istribution may receive their
1) Who May Initiate a Wind Up
a) Employer-initiated wind up
The PBA gives a n 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 pas s a resolution winding up a
pension plan is usually vested in the board of directors of the company
sponsoring the plan a nd this would be stated in the plan tex t: “employ-
ers have the right to decide both whether to est ablish pension plans for
their employees and, subject to anything to the contrary in the pen sion
plan documentation, to end any pension plan t hey might establish.”14
An employer-initiated wind up may occur for many reasons, but
most commonly because the employer has been a pa rty to a purchase or
sale of a business or ha s engaged in an internal corporate reorganizat ion
which demands other priorities, or seeks to access surplus ex isting in
the plan and windi ng it up is the most cost-eective manner of distrib-
uting it. There may be other motivations for an employer to wind up
a plan, which include any combination of the foregoing.15 Regardless
of the reason, the employer has full discretion to wind up a plan and,
10 PBA, above note 1, s 76.
11 PBA, ibid, s 68(1). See also Albert a (AEPPA , s 117(1)); British Columbia (BCPBSA,
s 97(1)); Manitoba (MPBA, s 2 6(4)); New Brunswick (NBPB A, s 60(1)); New-
foundland and Labrador (NLPB A, s 60(1)); Nova Scotia (NSPBA, s 92(1)); Quebec
(QSPPA , s 204).
12 Lomas, above note 2 at para 65.
13 Ibid.
14 Ibid at par a 61. Also see McCann, abo ve note 2.
15 For example, see FSCO Policy W 100-460 (updated Novem ber 2012).

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