Wind up

• Author: Ari Kaplan/Mitch Frazer
• Pages: 509-560

509

CHA PTER 9

WIND UP

A. INTRODUC TION

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.

PENSIO N LAW510

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

benef‌its.

B. INITI ATION OF WIND UP

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).