Pension Plan Expenses

On August 7, 2009 in Kerry (Canada) Inc. v. DCA Employees Pension Committee the Supreme Court of Canada upheld the Ontario Court of Appeal's 2007 decision.

The case will be welcome to employers with pension plans, and serves to clarify the ground rules about use of pension funds to pay pension expenses and take contribution holidays.

The Supreme Court made the following key determinations:

• Contribution Holidays: Where a pension plan has both defined benefit ("DB") and defined contribution ("DC") components, surpluses in the plan may be used by the employer to take contribution holidays from its DC contributions, so long as certain requirements are met.

• Pension Plan Expenses: Employers can use pension trust monies to pay reasonable and bona fide plan expenses unless it separately committed clearly that such expense would be paid by it. This even includes "in-house" administration expenses. Even if the originating pension plan documents contain an "exclusive benefit" clause, expenses can ordinarily be taken from the trust fund, and the employer can lawfully amend a pension plan to permit use of trust funds to pay expenses.

While the decision deals with an Ontario employer and plan, the principles will have general application in Canadian courts.

Limits on Employer's Ability to Use Trust Funds for Expenses

The implications of the decision are wide, but there are still limits on an employer's ability to use trust funds in some situations.

In the first place, where a pension trust is created with an express requirement that some or all expenses be paid by the employer, this would likely govern, and it would be necessary to carefully review any reserved amendment power to determine if changes would be effective.

In Kerry, a distinction was drawn between "trust expenses" and "plan expenses".

Secondly, the court only determined that certain expenses were permissible , in particular, such expenses as were bona fide, necessary and reasonable. The court decided that certain consulting fees were not expenses that could properly be paid from the pension fund.

This leaves open actions by employee groups that wish to challenge the conduct of pension plan administrators on the basis that improper expenses have been taken from trust funds, but only in certain circumstances, which are more clearly defined now, but more limited that had been thought under prior decisions.