Northern Exposure

Employer’s Right to Reduce Pension Benefits

By Lyne Duhaime

In most Canadian jurisdictions, employers are limited in retroactively reducing pension benefits. The Quebec Superior Court recently considered employers’ rights in this regard in Synertech Moulded Products, Division of Old Castle Buildings v. Tribunal Administratif du Québec et al.

The court ordered the Quebec Regulator to register pension amendments proposed by the employer and said that absent specific powers, the Quebec Regulator could not arbitrarily refuse to register pension amendments to which affected employees had agreed.

Quebec legislation
The Quebec Supplemental Pension Plans Act (SPPA) provides that no amendment to a pension plan that (a) cancels refunds or pension benefits, (b) limits eligibility, or (c) reduces the amount or value of the benefits of members or beneficiaries may become effective unless

  • the affected members or beneficiaries have agreed to the amendment; and
  • the Régie des rentes du Québec (Regulator), has authorized the amendment.

The problem is that the SPPA does not indicate the criteria that should govern the Regulator when deciding whether to authorize an amendment. Until recently, the Regulator’s nonofficial position was that amendments that created a reduction of the value of members’ benefits by more than five percent were not authorized. This may now need to change.

In Synertech, the employer had put in place individual pension plans for two key employees. In November 2008, after the financial crash, the employer and the two employees agreed to amend the plans to eliminate the deficit and to terminate the plans as of December 31, 2008.

In 2009, the employer submitted the amendments to the Regulator for registration. The consents of the affected members were provided to the Regulator. But the Regulator refused to register the amendments. Why? Among other things, it said that the amendments significantly and retroactively reduced the value of the rights of the employees.

The decision of the Regulator was maintained by the Administrative Tribunal of Quebec.  The employer then asked the Quebec Superior Court to review the decision. The Superior Court disagreed with the earlier decisions and ordered the Regulator to register the amendments.

The Superior Court reminded the parties that the Regulator, when relying on its discretionary power, must not act arbitrarily, unfairly, or unreasonably. In the absence of criteria in the legislation, the Regulator cannot arbitrarily decide which amendments are significant and which amendments have a retroactive effect. Rather, the government must specify, through legislation, which amendments are significant or have a retroactive effect.

It appears that the Superior Court has suggested that the law should be amended or clarified. At least, the Regulator has certainly been encouraged to adopt guidelines that would make its position known by employers and employees.

In light of the Synertech decision, if the legislation is not clarified or the Regulator does not adopt an official policy on retroactive reduction of benefits, its discretionary powers will be extremely difficult to exercise when affected employees consent to pension amendments. It remains to be seen whether other Canadian provinces will take a similar approach.