On April 14, 2000 the Financial Services Tribunal of Ontario (FST) issued a landmark decision in Monsanto v. Superintendent of Financial Services of Ontario. The decision addressed a number of key pension plan surplus issues in the context of a partial plan wind up. The case, which was earlier reported on in the February edition of Lexpert, arose when Monsanto wound up part of a pension plan as a result of the closure of one of its plants. After receiving Monsanto’s Partial Wind Up Report, however, the Superintendent served Monsanto with a Notice of Proposal to refuse to approve the Report. Three main areas of disapproval were raised by the Superintendent: first, the Superintendent felt that surplus that was identified after the wind-up be distributed to plan members—Monsanto proposed to use it as a cushion against future plan expenses; second, the Superintendent challenged Monsanto’s proposal to use surplus to provide early retirement and related benefit enhancements to staff on the basis that it was an indirect use of surplus to save severance costs, and therefore amounted to a surplus withdrawal; and third, the Superintendent wanted Monsanto to purchase annuities for persons effected by the wind-up who elected to receive pensions—Monsanto proposed paying the benefits from the plan as they fell due.
The positions taken by the Superintendent on these issues were widely viewed by employers and pension industry consultants as significant unanticipated changes from previous practice. Consequently, the Association of Canadian Pension Management (ACPM) applied for, and received, intervenor status in the proceedings, and a number of other employer groups filed written interventions. A key area of Monsanto’s argument to the FST was that it was relying on past practice of the regulator and that Monsanto had a legitimate expectation that the regulator would approve the report.
A majority of the FST agreed with Monsanto on this point, and also found in favour of Monsanto on all the issues raised by the Superintendent. The FST ruled that: surplus is not required to be paid out on partial wind up, the use of surplus to provide benefit enhancements did not involve a payment of surplus to Monsanto; and that Monsanto’s approach in paying pensions was of practical benefit to all concerned and was not precluded by legislation. The Superintendent was ordered to approve the report. It was clear from the FST’s decision, however, that a number of issues remain unclear.
Freya Kristjanson and Markus Kremer of Borden Ladner Gervais LLP represented Monsanto in the proceedings. Deborah McPhail of the Pension Commission of Ontario represented the Superintendent. Ronald Davis and Mark Zigler of Koskie Minsky represented a group of Monsanto Employees. Jeff Galway and Randy Bauslaugh of Blake Cassles & Graydon LLP represented the ACPM.