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The new pension arena

Posted by on Feb 1, 2008 in Employee Benefit News, Retirement | 0 comments

By: Sheryl Smolkin

Read this article and comments at HRInsider.ca  

Key legal decisions could mean that the arena for more high-stakes pension cases will shift from the courts to regulators and arbitrators.

Lawyers across the country have mixed views as to the impact this will have on employer and employee remedies, but most agree that the next wave of pension litigation will likely involve DC plans – and they are keeping a close watch on activity south of the border.

In 2006, Supreme Court of Canada decisions in both Buschau v. RogersCommunications and Bisaillon v. Concordia University ruled on the appropriate venue for contesting pension cases.

· The court in Buschau said in appropriate circumstances, courts will defer to the Superintendent of Pensions regarding disputes in respect to member rights.

· Because Concordia arose out of collective agreements, the court confirmed a class action was incompatible with the exclusive jurisdiction of grievance arbitrators.

Government watch dogs
Blake Cassels & Graydon LLP partner and litigator Jeff Galway doesn’t seeBuschau as an abdication of the court’s responsibility to deal with pension issues. “Pensions are a complicated, heavily regulated area. There was recognition that the superintendent or the regulator may be the best person to deal with many of the issues being raised today in the courts.”

“I see the trend in Buschau and Concordia, which is don’t go the courts,’ as problematic for plan sponsors, because both routes decrease employee access to justice,” says Ari Kaplan, a partner at Koskie Minsky LLP.

Kaplan points out that in a class action, former employees can band together and hire a lawyer to take their case on a contingency basis, and the courts allow the costs of litigation to be paid out of the pension plan.

“Before Kerry even saw the light of day in a courtroom, there were three Notice of Proposal applications before the superintendent, three separate appeals to the Financial Services Tribunal and three appeals to the Divisional Court,” he says. “If we can go right to a judge, we eliminate two other costly and time-sensitive layers of adjudication where there is no deference anyway from the courts.”

When it comes to hearings before the regulator, Fasken Martineau DuMoulin LLP partner Ron Walker says, “I’ve heard shockingly candid comments from the plaintiff’s bar that the [Ontario] regulator is entirely pro-company, and even if they are not, they don’t know what they are doing.”

However, he suggests that in light of Kerry – where the SCC awarded $80,000 in costs against the unsuccessful plaintiffs – the FST may be the place to go for employees who are not necessarily represented by plaintiff’s’ class action counsel.

“I just don’t buy Ari’s comments about the quality of the decisions coming out of the FST as of late,” says Kathryn Bush, a Blake Cassels & Graydon LLP partner and former vice chair of the FST. “We shouldn’t lose sight of the fact that there are an awful lot of things the regulator can do that cost employers nothing. Talk about access to justice – a paid government watchdog is the best access to justice anyone can get.”

Halifax-based McInnes Cooper partner Hugh Wright says if anything, in Nova Scotia the superintendent is perceived as pro-employee. “The regulator’s main reason for being is to protect the members, so it’s not necessarily perceived by employers to be the most objective forum for a hearing.”

Another anomaly, says Wright, is that the Nova Scotia superintendent sits on appeals from her own decisions. “As a result, there is pretty well guaranteed to be an appeal either way.”

Labour arbitrations
Lawyers interviewed also point out that limiting pension remedies to arbitrations where there is a collective agreement can be problematic.

A more precise pension statute has resulted in much less pension litigation in Quebec, but Ogilvy Renault LLP partner Martin Rochette thinks the strict labour law theory applied by the SCC in Concordia will create a procedural nightmare.

“I don’t think the arbitrators are the proper forum to discuss the very complex issues that surround pension plans,” he says.

“Concordia has the tremendous possibility to limit class actions,” says Freya Kristjanson, a partner at Borden Ladner Gervais LLP. “In terms of the jurisprudence, I think it’s a bad thing. Unpredictable decisions that do not establish precedent are not particularly helpful to employers trying to manage future liability. A huge amount of money may be in play,’ with limited appeal rights for the parties.”

Walker says he has wrestled with the implications.

“I understand the reasoning, but it is fraught with issues. Arbitration invites decisions where,potentially, the adjudicator is not experienced in dealing with either construction of trusts in relation to plan documentation, or the practical implications of administering these plans across large groups of people who may be in different jurisdictions and governed by different regulations.”

Yet British Columbia’s pension statute specifically permits statutory arbitration as an option, and Lawson Lundell LLP partner Murray Campbell was recently successful in having a class action decertified because the employer had validly invoked the arbitration procedure.

“Our Class Proceedings Act is very pro-plaintiff,” he says. “If the choice in B.C. is to go to court with a plaintiff who has all these advantages, you might be better off [before an arbitrator.]”

Campbell acknowledges the pros and cons of courts vs. regulators vs. arbitrators may vary from cases to case, yet he says the impact ofBuschau – which originated in B.C. – has already impacted his practice. “It’s early days yet, but we’re involved in much more administrative law, as opposed to defending class actions.”

New frontiers
So if traditional sources of pension class action cases are drying up, what are the new frontiers for pension litigation?

“If I was a plaintiff’s class action guy in this field, I’d be looking very seriously at DC plans in Canada and trying to find an attack that, to some degree, might mirror what is going on in the U.S.,” says Walker.

According to Heidi Winzeler, counsel with the New York office of Osler, Hoskin & Harcourt LLP, pending U.S. cases fall into several categories.

“The big one right now is fees litigation. Most of the cases have not yet been decided on the merits, although at least one court has rejected the claims,” she says.

“Plaintiffs are alleging employers violated their fiduciary duties by failing to understand or disclose all of the fees charged by service providers and for failing to appropriately consider fees when offering particular investment options. Plaintiffs are also suing service providers based on revenue-sharing arrangements.”

Cases where plan members maintain that employer stock is an inappropriate investment option are another source of 401(k) litigation, notes Winzeler, particularly where losses have resulted from a drop in the price of company stock. However, she continues, “Plan fiduciaries that understand and comply with the ERISA safe harbour’ requirements in evaluating company stock as an investment option should be able to withstand such attacks.”

Because Canadian pension statues virtually ignore DC plans, Kristjanson thinks selection and monitoring of investment options could be fertile ground for litigation in this country. “If I was an administrator or an employer, I’d rather have a safe harbour I know would protect me. The issue with the CAP Guidelines is that, unlike the U.S. safe harbour, there isn’t one that extends protection if you are in compliance.”

Kaplan agrees with Kristjanson that legislation should be passed to set out rules in a crystal clear way and to discharge prudent administrators. “We are about 15 or 20 years behind DC litigation in the U.S., and by then, who knows? Perhaps the CAP Guidelines will be fleshed out,” he says.

“We’ve long predicted [DC litigation], but so far we haven’t seen much,” says Campbell. “The only case close in B.C. – still in its early stages – involves Tolko Industries. A plan member elected to go DC in a DB plan conversion about 10 years ago, and now says he should be able to rescind his election because of a breach of fiduciary duty and misrepresentation.”

In spite of any potential uncertainty, Campbell sides with many industry stakeholders who think codification of the CAP Guidelines is unnecessary. “The courts will view them as having the force of law,” he says.

And if plan sponsors are really concerned about risk associated with selection of DC investment options, he says the answer may be to get rid of choice. “Ensuring a single balanced fund is prudently managed and invested is very straightforward, and then you don’t fall under the guidelines.”

Cited cases
· Buschau v. Rogers Communications Inc., [2006] 1 S.C.R. 973, 2006 SCC 28
· Bisaillon v. Concordia University, [2006] 1 S.C.R. 666, 2006 SCC 19
· Kerry (Canada) Inc. v. DCA Employees Pension Committee, [2007] ONCA 416


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