Telecommunications Employees Association of Manitoba Inc. v. Manitoba Telecom Services Inc.

Telecommunications Employees Association of Manitoba Inc. v. Manitoba Telecom Services Inc.
Collection
Supreme Court Judgments
Date
2014-01-30
Neutral citation
2014 SCC 11
Report
[2014] 1 SCR 142
Case number
34763
Judges
McLachlin, Beverley; LeBel, Louis; Fish, Morris J.; Rothstein, Marshall; Cromwell, Thomas Albert; Moldaver, Michael J.; Karakatsanis, Andromache
On appeal from
Manitoba
Subjects
Pensions
Notes
SCC Case Information: 34763
Decision Content
SUPREME COURT OF CANADA
Citation: Telecommunications Employees Association of Manitoba Inc. v. Manitoba Telecom Services Inc., 2014 SCC 11, [2014] 1 S.C.R. 142
Date: 20140130
Docket: 34763
Between:
Telecommunications Employees Association of Manitoba Inc. — International Federation of Professional & Technical Engineers, Local 161; Communications, Energy and Paperworkers Union of Canada, Local 7; International Brotherhood of Electric Workers, Local Union 435; Harry Restall, on his own behalf and on behalf of certain retired employees or the Widows/Widowers thereof of Manitoba Telecom Services Inc., MTS Communications Inc., MTS Mobility Inc. and MTS Advanced Inc.; and Larry Trach, on his own behalf and on behalf of all unionized employees of Manitoba Telecom Services Inc., MTS Communications Inc., MTS Mobility Inc. and MTS Advanced Inc. and all unionized employees of MTS Media Inc. who were transferred to Yellow Pages Group Co. pursuant to a sale on October 2, 2006
Appellants
and
Manitoba Telecom Services Inc. and MTS Allstream Inc. (as successor to MTS Communications Inc., MTS Mobility Inc. and MTS Advanced Inc.)
Respondents
Coram: McLachlin C.J. and LeBel, Fish, Rothstein, Cromwell, Moldaver and Karakatsanis JJ.
Reasons for Judgment:
(paras. 1 to 91)
Rothstein J. (McLachlin C.J. and LeBel, Fish, Cromwell, Moldaver and Karakatsanis JJ. concurring)
Telecommunications Employees Association of Manitoba Inc. v. Manitoba Telecom Services Inc., 2014 SCC 11, [2014] 1 S.C.R. 142
Telecommunications Employees Association of Manitoba
Inc. — International Federation of Professional & Technical
Engineers, Local 161; Communications, Energy and
Paperworkers Union of Canada, Local 7; International
Brotherhood of Electric Workers, Local Union 435; Harry
Restall, on his own behalf and on behalf of certain retired
employees or the Widows/Widowers thereof of Manitoba
Telecom Services Inc., MTS Communications Inc., MTS
Mobility Inc. and MTS Advanced Inc.; and Larry Trach, on his
own behalf and on behalf of all unionized employees of
Manitoba Telecom Services Inc., MTS Communications Inc.,
MTS Mobility Inc. and MTS Advanced Inc. and all unionized
employees of MTS Media Inc. who were transferred to Yellow
Pages Group Co. pursuant to a sale on October 2, 2006 Appellants
v.
Manitoba Telecom Services Inc. and MTS Allstream Inc.
(as successor to MTS Communications Inc., MTS
Mobility Inc. and MTS Advanced Inc.) Respondents
Indexed as: Telecommunications Employees Association of Manitoba Inc. v. Manitoba Telecom Services Inc.
2014 SCC 11
File No.: 34763.
2013: May 16; 2014: January 30.
Present: McLachlin C.J. and LeBel, Fish, Rothstein, Cromwell, Moldaver and Karakatsanis JJ.
on appeal from the court of appeal for manitoba
Pensions — Pension plans — Surplus — Members of pension plan having assets and pension rights transferred to new pension plan as result of privatization of employer — Original pension fund having actuarial surplus of 43 million dollars — Actuarial surplus sole result of employee contributions to old plan — Employer using surplus to take contribution holiday — Legislation stating that on implementation date new plan to provide benefits equivalent in value to those which employees were entitled to under old plan — Whether employer violated legal duties — The Manitoba Telephone System Reorganization and Consequential Amendments Act, S.M. 1996, c. 79, s. 15.
On January 1, 1997, Manitoba Telephone System (“Crown MTS”), a Crown corporation, was privatized and became what is now Manitoba Telecom Services Inc. and MTS Allstream Inc. (“MTS”). As a result of the privatization, approximately 7,000 employees and retirees of Crown MTS and its subsidiaries (the “plan members”) had their assets and pension rights transferred to a new pension plan. Prior to privatization, Crown MTS employees and retirees were members of a contributory defined benefit plan. Similar to a typical defined benefit plan, eligible employees were required to contribute a percentage of their pensionable earnings to the plan fund. However, unlike a typical defined benefit plan, the government as employer did not contribute to the plan fund. Rather, the government paid its share of the benefits on a “pay‑as‑you‑go” basis, meaning that instead of matching employee contributions at the time they were paid into the pension fund, the government instead paid half of the benefits owed to retirees at the time they became due. The effect of this arrangement was that the old plan’s pension fund contained only employee contributions and interest. At the time of privatization, the original pension fund had an actuarial surplus of $43.364 million (the “Initial Surplus”). During the privatization process of Crown MTS, the plan members received several assurances from Crown MTS and the government that any surplus that existed in the old pension fund at the time of privatization would not be used to reduce MTS’s cost of, and share of contributions to, the new pension plan. Pursuant to the Act that governed the privatization of Crown MTS (“Reorg. Act”), all of the old plan’s assets attributable to the plan members, including the Initial Surplus, were transferred to the new pension plan. Section 15(2)(a) of the Reorg. Act stated that MTS was required to establish a “new plan which shall provide for benefits which on the implementation date are equivalent in value to the pension benefits to which employees have or may have become entitled under [the old plan]”. Plan member representatives also signed a Memorandum of Agreement (“MOA”) with MTS and the provincial government that made specific provision for the treatment of the Initial Surplus under the new plan. However, the provisions of the new pension plan made it virtually impossible for the plan members to ever receive any benefit funded by the Initial Surplus. Instead, MTS has been able to use the Initial Surplus to take contribution holidays, which allowed it to offset contributions it would otherwise be required to make to the pension fund.
The plan members commenced proceedings seeking payment of the Initial Surplus plus interest to be used to provide enhanced benefits, provided those enhanced benefits will not increase MTS’s costs. The trial judge determined that the plan members were entitled to relief. He held that MTS’s treatment of the Initial Surplus violated s. 15(2)(a) of the Reorg. Act because the benefits provided under the plans were not equivalent in value because the Initial Surplus, which had been accessible to the plan members under the old plan to fund enhancements, was not accessible to them under the new plan. The Court of Appeal allowed MTS’s appeal and dismissed the plan members’ cross‑appeal, concluding that s. 15(2)(a) only required equivalency of the basic superannuation allowance received by plan members under the two plans.
Held: The appeal should be allowed.
Entitlement to an actuarial surplus must always be decided based on the governing legislation. Here, the applicable legislation required the establishment of a new plan that provides benefits that, at its implementation date, are equivalent in value to the benefits provided under the old plan. The inclusion of the word “value” in “equivalent in value” suggests that the phrase should be interpreted as capturing both the benefits paid to the plan members and the funding mechanism used to produce those benefits. It is not enough for the monthly payments provided by each plan to be equal. Had s. 15(2)(a) been intended to have such a narrow meaning, there would be no need to refer to the equivalency of the value of the benefits. The statutory context and the legislative history of s. 15 both support the view that s. 15(2)(a) was intended to require more than a simple comparison of the amount paid each month to plan members under each pension plan.
The governing legislation and the unique features of the old plan distinguish this case from previous decisions of this Court involving entitlement to the actuarial surplus in a defined benefit pension plan. The original pension plan was not wound up and the actuarial surplus did not crystallize in that context. However, s. 15(2)(a) of the Reorg. Act created a break between the two pension plans. Further, the MOA and the plan text of the new plan isolated and fixed the quantum of the Initial Surplus such that it cannot be considered a typical actuarial surplus. As a result of s. 15(2)(a) and these unique features of the two pension plans, determining whether the benefits of the two plans are “equivalent in value” requires consideration of how much the employees had to contribute to obtain those benefits.
Here, the benefits provided by the old and new plans were not equivalent in value as of the implementation date. For the benefits to be equivalent in value, the means by which those benefits were funded must also have been equivalent, or additional benefits must have been provided to compensate for any funding inequalities. The Initial Surplus is attributable and to be credited exclusively to the employees for the purpose of determining how the new plan was funded. It was the plan members whose contributions solely resulted in the Initial Surplus and who bore the risk in the event of a deficit in the fund during the period in which the Initial Surplus was generated. MTS did not match the plan members’ contribution of $43.364 million — the Initial Surplus — to the new plan on the implementation date. Only MTS benefitted from this excess contribution and plan members received no enhanced benefits funded by the excess contribution. There has therefore not been adherence to the requirements of s. 15(2)(a) in this case.
Cases Cited
Referred to: Nolan v. Kerry (Canada) Inc., 2009 SCC 39, [2009] 2 S.C.R. 678; Burke v. Hudson’s Bay Co., 2010 SCC 34, [2010] 2 S.C.R. 273.
Statutes and Regulations Cited
Civil Service Superannuation Act, C.C.S.M. c. C120, ss. 1(1) “pension benefit”, 22(1), 33(7.1).
Civil Service Superannuation Amendment Act, S.M. 1989‑90, c. 59.
Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .).
Manitoba Telephone System Reorganization and Consequential Amendments Act, S.M. 1996, c. 79, s. 15.
Pension Benefits Standards Act, 1985, R.S.C. 1985, c. 32 (2nd Supp .).
Authors Cited
Kaplan, Ari, and Mitch Frazer. Pension Law, 2nd ed. Toronto: Irwin Law, 2013.
Manitoba. Legislative Assembly. Standing Committee on Public Utilities and Natural Resources, 2nd Sess., 36th Leg., vol. XLVI, No. 7, October 31, 1996, pp. 295‑96, 298‑99.
Manitoba. Legislative Assembly. Standing Committee on Public Utilities and Natural Resources, 2nd Sess., 36th Leg., vol. XLVI, No. 15, November 7, 1996, p. 809.
Sullivan, Ruth. Sullivan on the Construction of Statutes, 5th ed. Markham, Ont.: LexisNexis, 2008.
APPEAL from a judgment of the Manitoba Court of Appeal (Chartier, Beard and MacInnes JJ.A.), 2012 MBCA 13, 275 Man. R. (2d) 185, 538 W.A.C. 185, 96 C.C.P.B. 20, [2012] 6 W.W.R. 434, [2012] M.J. No. 52 (QL), 2012 CarswellMan 57, reversing a decision of Bryk J., 2010 MBQB 11, 248 Man. R. (2d) 31, 79 C.C.P.B. 180, [2010] 8 W.W.R. 87, [2010] M.J. No. 15 (QL), 2010 CarswellMan 19. Appeal allowed.
Brian J. Meronek, Q.C., Kris M. Saxberg, D. Tomas Masi, James Cameron and Andrew Astritis, for the appellants.
Kevin T. Williams, Paul B. Forsyth and Kyle Dear, for the respondents.
The judgment of the Court was delivered by
Rothstein J. —
I. Introduction
[1] On January 1, 1997, The Manitoba Telephone System, a Crown corporation, was privatized and became what is now Manitoba Telecom Services Inc. and MTS Allstream Inc. (for simplicity, all of these entities prior to privatization are referred to as “Crown MTS” and after privatization as “MTS”). As a result of the privatization, approximately 7,000 employees and retirees of Crown MTS and its subsidiaries (the “plan members”) had their assets and pension rights transferred to a new pension plan. The assets included a $43.364 million “actuarial surplus”.
[2] An actuarial surplus occurs in a typical defined benefit pension trust fund when the assets in the trust fund exceed the actuarial estimate of the liabilities of the pension plan at the time of the actuarial assessment. The present case requires us to determine how the case-specific legislation and unique features of the pension plan at issue here affect treatment of an actuarial surplus that had developed as the sole result of employee contributions to a predecessor plan when those funds were rolled into a successor plan.
[3] This Court has considered a number of cases in which the applicable legislation and plan texts have not given plan members the right to an actuarial surplus in a typical defined benefit pension plan. However, entitlement to an actuarial surplus must always be decided based on the governing legislation. In this case, the governing legislation leads to a different conclusion regarding the treatment of the actuarial surplus. Here, the applicable legislation required the establishment of a new plan that provides benefits that, at its implementation date, are equivalent in value to the benefits provided under the prior plan. The actuarial surplus that existed at the time of the transfer of assets from the prior plan must be taken into account when determining whether the new plan fulfills this requirement. The governing legislation and the unique features of the original plan distinguish this case from previous cases involving entitlement to the actuarial surplus in a defined benefit pension plan.
[4] During the privatization process of Crown MTS, the plan members sought assurances from Crown MTS and the government that their pensions would remain secure. One of their chief concerns throughout the process was what would happen to any actuarial surplus that existed in their pension fund at the time of privatization because, during the operation of the original pension plan, such surplus had never been used except for their benefit. The plan members received several assurances from Crown MTS and the government that any surplus that existed in the original pension fund at the time of privatization would not be used to reduce MTS’s cost of, and share of contributions to, the new pension plan.
[5] At the time of privatization, the original pension fund had an actuarial surplus of $43.364 million (the “Initial Surplus”). All of the original plan’s assets, including the Initial Surplus, were transferred to the new pension plan. However, the provisions of the new pension plan made it virtually impossible for the plan members to ever receive any benefit funded by the Initial Surplus. Instead, MTS has been able to use the Initial Surplus to take contribution holidays, which allow it to offset contributions it would otherwise be required to make to the pension fund.
[6] The issue in this case is whether MTS — by structuring the new plan such that the Initial Surplus would never be used to the plan members’ benefit — violated legal duties that arose in accordance with (1) The Manitoba Telephone System Reorganization and Consequential Amendments Act, S.M. 1996, c. 79 (the “Reorg. Act”); (2) a Memorandum of Agreement (“MOA”) it signed with representatives of the plan members; or (3) other written representations it made to the plan members prior to the privatization that any surplus transferred would not be used to reduce MTS’s cost of, or contributions to, the pension plan.
[7] I have concluded that MTS has violated the terms of the Reorg. Act, that this conclusion is not inconsistent with the MOA, and that it is unnecessary to decide whether MTS’s other written representations had legal effect and were breached. In light of deficiencies in the record and the financial complexity of the issues, I would reinstate the trial judge’s order requiring MTS to make the $43.364 million in Initial Surplus plus “interest at the New Plan rate of return from January 1, 1997 to the date of payment” (“plan rate interest”) available to the plan members to be used to pay for enhancements to their pension benefits (2010 MBQB 11, 248 Man. R. (2d) 31, at para. 518). Should the parties be unable to settle how the $43.364 million plus plan rate interest is to be made available to plan members, the matter shall be remanded to the trial judge for any necessary determinations.
II. Factual Background
[8] On January 1, 1997, Crown MTS was privatized. As a result of the privatization, approximately 7,000 employees and retirees of Crown MTS and its subsidiaries had their assets and pension rights transferred to a new pension plan.
[9] Resolution of the legal issues in this case requires consideration of the plan members’ pension entitlements prior to privatization, the events that occurred leading up to the privatization, and the plan members’ pension entitlements under the new pension plan that was created as a result of the privatization.
A. The Pension Plan Prior to Privatization
[10] Prior to privatization, Crown MTS employees and retirees were members of a pension plan created by the Government of Manitoba for its employees and the employees of its Crown corporations (the “Old Plan”). The Old Plan was created by statute, which at all times relevant to this litigation was The Civil Service Superannuation Act, C.C.S.M. c. C120 (“CSSA”). The CSSA provided the plan text for the Old Plan.
[11] The Old Plan was a contributory defined benefit pension plan with certain unique features that vary from those of traditional defined benefit plans. Similar to a typical defined benefit plan, under the Old Plan, eligible employees were required to contribute a percentage of their pensionable earnings to the plan fund. Upon retirement, employees with vested pensions were entitled to receive a monthly superannuation allowance determined by a formula that took into account their years of service and average salary during the best 5 years of their last 12 years of employment. However, unlike a typical defined benefit plan, the government as employer did not contribute to the plan fund. Rather, the government paid its share of the benefits on a “pay-as-you-go” basis, meaning that instead of matching employee contributions at the time they were paid into the pension fund, the government instead paid half of the benefits owed to retirees at the time they became due (trial reasons, at para. 25).
[12] The effect of this arrangement was that as of 1961, the Old Plan’s pension fund, referred to as the Civil Service Superannuation Fund (“CSSF”), contained only employee contributions and “interest”, which, although undefined by the CSSA, was in practice, a rate based on the returns on the fund’s assets. Those funds would be used to pay for 50 percent of the plan’s liabilities to its plan members, with the other 50 percent being paid for by the government on an ongoing basis.
[13] Although it was not legally required to do so, Crown MTS maintained a separate account, referred to as the pension reserve, which was used to ensure that it had enough funds to cover its liabilities under the pension plan. The pension reserve was not a trust fund; the money in the reserve remained available for Crown MTS to use for other purposes, although it never did so.
[14] The Old Plan also provided that plan members’ monthly superannuation allowance could be supplemented by cost of living adjustments (“COLA”) to account for inflation. Payments of the plan members’ share of COLA under the Old Plan were made from a separate account, the Superannuation Adjustment Account (“SAA”). When employees contributed to the Old Plan, a percentage of each contribution was credited to the SAA. The assets of the SAA were held separately from the CSSF and the SAA earned interest at the plan’s rate of return.
[15] The amount of COLA to be paid to plan members from the SAA was determined by the plan actuary, based on some fraction of the Consumer Price Index (“CPI”). The target COLA paid from the plan was 2/3 of CPI and COLA of up to 2/3 of CPI was automatically authorized to the extent that doing so would not result in an unfunded liability in the SAA. A prefunding requirement referred to as the “20-year rule” prevented the plan actuary from authorizing COLA in excess of 2/3 CPI if he determined that the SAA had insufficient funds “to make all required adjustment payments on a continuing basis for the immediately ensuing period of 20 years” (CSSA, s. 33(7.1), as per The Civil Service Superannuation Amendment Act, S.M. 1989-90, c. 59, in force March 15, 1990). In other words, the plan actuary could not authorize COLA of, for example, 100 percent CPI if the SAA did not contain sufficient assets to finance 20 years of the plan members’ share of the COLA at a rate of 100 percent CPI (CSSA, s. 33(7.1)). The purpose of the 20-year prefunding requirement was to reduce the likelihood that funds from the SAA would be overspent on current retirees, such that the SAA would be unable to pay COLA to future retirees. The government was only required to match COLA payments from the SAA that were payable under the CSSA.
[16] From time to time, the Old Plan would experience an actuarial surplus, meaning that the amount of funds in the CSSF and SAA exceeded 50 percent of the actuarial estimate of the plan’s liabilities. The governance mechanism set out by the CSSA allowed the plan members to negotiate with the government to use such surplus to finance enhancements to their benefits. In particular, when surplus existed, the plan’s Liaison Committee (which was composed of representatives of plan members) would make proposals for the use of surplus to the plan’s Advisory Committee (which was composed of government representatives). Upon an agreement between the committees, the legislature always amended the CSSA to implement the enhancements.
[17] Proposals for the use of actuarial surplus were always made at the plan members’ initiative and surplus was used only to the plan members’ benefit, out of recognition that the surplus was created solely by virtue of employee contributions to the CSSF. However, when an agreement was reached to use surplus funds to pay for enhancements, the government was not required to and at times refused to match the amount paid from the CSSF. Actuarial surpluses were at times used to supplement COLA, but such use of actuarial surplus was sporadic.
[18] At the time that Crown MTS was privatized, the Old Plan had a $43.364 million actuarial surplus. For the purposes of this appeal, the amount of the surplus, as confirmed by the Court of Appeal and accepted by the parties, is not disputed.
B. The Road to Privatization
[19] The process of privatizing Crown MTS began in early 1996. In May 1996, the legislature introduced for first reading Bill 67, which would govern the privatization of Crown MTS. Bill 67 ultimately became the Reorg. Act. The Bill provided, in the only section devoted to employee benefits, that plan members would be deemed to consent to the termination of their participation in the Old Plan and to have the assets, liabilities and agreements of the Old Plan transferred to a new pension plan (s. 15(8)). Section 15(2)(a) of the Bill stated that MTS was required to establish a “new plan which shall provide for benefits which on the implementation date are equivalent in value to the pension benefits to which employees have or may have become entitled under The Civil Service Superannuation Act [i.e. the Old Plan]” (the “New Plan”).
[20] Upon learning of the possibility of privatization, the plan members became concerned about the security of their pensions. Shortly after the introduction of Bill 67, a group of employees and retirees formed the Employee Retiree Pension Committee (“ERPC”). That Committee, along with some of the unions representing employees, sought involvement in privatization discussions to ensure that the pension benefits enjoyed by plan members under the Old Plan would be continued under the New Plan. One of the plan members’ main concerns regarding the security of their pensions was what would happen to the Initial Surplus — which, under the Old Plan, would have been available to pay for benefit enhancements — in the transition to the New Plan. They wanted assurance that it would only be used as it had in the past, that is, to fund pension improvements and to enhance COLA benefits.
[21] The ERPC and the relevant unions engaged in meetings and communications with representatives of MTS, including its President and Chief Executive Officer, William Chisholm Fraser. Throughout the process, the plan members sought access to the plan text that was being drafted by MTS and relevant government officials to govern the New Plan. However, they were consistently refused access to the draft plan text. MTS took the position that it had been given the mandate to create the New Plan and that mandate did not require consultation or negotiation with the employee/retiree groups.
[22] The plan members nonetheless sought clarification from MTS as to how the Initial Surplus would be treated upon privatization. In response, they received assurances that any surplus in the Old Plan would be transferred to the new pension plan and would not be used to reduce MTS’s cost of, and share of contributions to, that plan. In one letter that the ERPC sent to Mr. Fraser, it posed the following questions regarding treatment of the Initial Surplus:
Included in the transfer amount defined in Section 15(1) of Bill 67 is a potential employees “surplus portion” of the Civil Service Superannuation Fund (C.S.S.F.). Although the final amount of the said employees “surplus portion” has not yet been determined by Turnbull & Turnbull, Actuary for C.S.S.F., please provide answers to the following:
a) Will the employees “surplus portion” of the transfer amount become part of the new plan?
b) Will the employees “surplus portion” of the transfer amount be used to enhance the employees [sic] share of the benefit improvements?
c) Will the employees “surplus portion” of the transfer amount be used to reduce the employer’s cost to the plan?
d) Please outline how these [sic] employees “surplus portion” will be invested in a separate trust account on behalf of the employees.
e) Will MTS match the contribution of the employees “surplus portion” of the transfer amount by contributing an identical amount to the new plan? [A.R., vol. VII, at p. 104]
[23] Mr. Fraser responded to this letter, stating:
(a) In accordance with the definition of “transfer amount” in subsection 15(1) of Bill 67, any surplus will form part of the transfer amount that will be transferred from the Civil Service Superannuation Fund (CSSF) to the trust fund that will be created in connection with the new pension plan to be registered under the PBSA and the Income Tax Act .
(b) & (c) Once the amount of the surplus is determined and transferred to the trust fund, an analysis will be undertaken to determine the most appropriate use of the surplus in connection with the pension plan. However, this surplus will not be used to reduce the employer’s cost of, and share of contributions to, the new pension plan. [Emphasis added; A.R., vol. VII, at p. 108.]
In another letter addressed to the ERPC’s counsel, Mr. Fraser reiterated that any surplus transferred from the Old Plan would “not be used to reduce MTS’ cost of, and share of contributions to, the new pension plan” (A.R., vol. VIII, at p. 117).
[24] The plan members also voiced their concerns regarding the Initial Surplus to the legislature. In October 1996, the ERPC made a presentation to the Standing Committee on Public Utilities and Natural Resources, stressing that surplus in the Old Plan had “historically been utilized for purposes of enhancing benefits” and requesting an amendment to clarify that any surplus existing at the time of the transfer “is not dissipated or otherwise rendered marginal when the employer's liability is determined through subsequent actuarial calculations” (Manitoba, Legislative Assembly, 2nd Sess., 36th Leg., vol. XLVI, No. 7, October 31, 1996, at pp. 295-96). The plan members subsequently presented a petition to the legislature with 1,525 signatures, which reiterated their interest in the funds transferred to the New Plan and in having the New Plan mirror the Old Plan to the extent possible.
[25] The government became concerned that the issues that had been raised by the ERPC were not being addressed and about possible opposition to the Reorg. Act. The Honourable Glen Findlay, the Minister responsible for Crown MTS, requested an update from MTS on the privatization process and the concerns that had been raised by the ERPC. On November 6, 1996, Mr. Fraser sent a memorandum to Minister Findlay that described the plan members’ concern about the treatment of the Initial Surplus and reiterated the message he had communicated to the ERPC: “MTS has undertaken that any such surplus will not be used to reduce MTS’s cost or share of contributions to the new pension plan” (A.R., vol. VIII, at p. 156).
[26] Despite Mr. Fraser’s assurances, the ERPC remained concerned that the plan members’ interests were not adequately protected. This led to two meetings on November 7, 1996. First, Jules Benson, Secretary to the Treasury Board, summoned Mr. Fraser to the legislature to discuss the plan members’ concerns, including the treatment of the Initial Surplus. Several government officials, including Ministers Findlay, Darren Praznik (Deputy House Leader), and Eric Stefanson (Minister of Finance) were also in attendance.
[27] The same day, Deputy House Leader Praznik and Tom Stefanson, Chairman of the MTS Board of Directors, arranged for a second meeting between representatives from the ERPC, the unions that had also voiced concerns, and Mr. Fraser (by telephone), with the objective of brokering an agreement between the parties. At this point, the plan members had still not been provided with a copy of the draft plan text for the New Plan. However, according to the trial judge’s findings, a background assumption during these meetings was that the plan members would retain the influence over the use of the Initial Surplus that they experienced under the Old Plan.
[28] The outcome of the second meeting was the MOA, signed by Mr. Fraser, representatives of the ERPC, representatives of the employee unions, as well as Deputy House Leader Praznik and Minister Eric Stefanson. With respect to the Initial Surplus, para. 3 of the MOA provided:
Any initial surplus from the CSSF would be allocated to the new pension plan trust fund to fund future cost of living adjustments. In subsequent years the financial position of the COLA Account will be reviewed by the plans [sic] actuary, if sufficient additional assets exist in the account beyond those required for the stated COLA increase for a particular year then pension benefits may be increased provided that the liability for the pension plan in total does not increase due to the change in benefits. [A.R., vol. VIII, at p. 158]
[29] The MOA also provided that the transfer of assets from the Old Plan to the new pension plan would be reviewed by actuaries retained by the employee unions and an actuary retained by MTS, as well as the Old Plan’s actuary. Further, in the event of any disagreement regarding the actuarial evaluation or the matters described in para. 3 of the MOA, the matter would be referred to an actuary appointed by the Provincial Auditor.
[30] Following the signing of the MOA, the legislature made three amendments to Bill 67. First, the legislature added s. 15(3), which provided that the Provincial Auditor would appoint an independent actuary to review the terms of the New Plan to determine whether, as of the implementation date, the benefits it provided were “equivalent in value” to those under the Old Plan, as required by s. 15(2)(a). Second, the legislature added s. 15(4), which provided that MTS “shall take any steps necessary to resolve any concerns raised by the independent actuary” in his report. Finally, the legislature added s. 15(11), which clarified that nothing in s. 15 should be interpreted as nullifying the effect of the MOA.
[31] The Reorg. Act was passed and received royal assent on November 28, 1996. Accordingly, Crown MTS was privatized, effective January 1, 1997.
C. The Pension Plan After Privatization
[32] The Reorg. Act required MTS to establish a new pension plan to which the assets and liabilities of the Old Plan attributable to MTS plan members would be transferred. The terms of the New Plan were set forth in the plan text drafted by the government and MTS during the privatization process (the “New Plan Text”).
[33] The New Plan is a contributory defined benefit plan. It is not disputed that the New Plan was not materially different from the Old Plan with respect to the ongoing contributions employees were required to make or the monthly defined benefits payable to retired plan members.
[34] However, upon privatization, the New Plan had to be and indeed was registered under the Pension Benefits Standards Act, 1985, R.S.C. 1985, c. 32 (2nd Supp .) (“PBSA ”), and the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .) (“ITA ”). Compliance with the PBSA and the ITA required the New Plan to differ in many respects from the Old Plan.
[35] One of the primary differences required by the PBSA was that MTS could not continue to operate the pension on the pay-as-you-go model of the Old Plan. Rather, PBSA compliance required MTS to ensure that the New Plan was fully funded on an ongoing basis. In other words, as the trial judge observed:
. . . MTS was required to pay their share of the cost of benefits “up front” just as did the employees. There were also additional payments required depending upon the financial status of the Fund. The employees were guaranteed benefits for which they were required to pay a fixed amount. Any cost over and above was the sole responsibility of MTS. [para. 304]
The terms of the New Plan Text provided accordingly.
[36] All the assets and liabilities of the Old Plan attributable to MTS plan members, including the Initial Surplus, were transferred to the New Plan. In addition, all of the funds Crown MTS had been maintaining in its pension reserve were transferred to the New Plan. The amount transferred from the pension reserve was equal to slightly more than its 50 percent share of the liabilities that existed at the time of privatization. The effect was that the New Plan was fully funded as of the implementation date, with a surplus approximately equal to the Initial Surplus transferred from the Old Plan.
[37] Because MTS had sole responsibility for the ongoing liabilities of the New Plan, the New Plan Text provided that MTS would have exclusive control over ongoing actuarial surpluses that resulted from contributions to the plan fund and earnings of the fund. For instance, consistent with the PBSA and the New Plan Text, MTS could use the ongoing actuarial surplus in the New Plan to reduce its regular contributions to the pension fund, referred to as a “contribution holiday”.
[38] Although the plan members challenged MTS’s right to control ongoing actuarial surpluses before the trial court, they abandoned that position on appeal. However, acceptance of MTS’s control over ongoing actuarial surpluses in the New Plan should not be confused with the issue of control over and proper use of the Initial Surplus, which is at the centre of this appeal.
[39] Under the New Plan, COLA was administered using a notional account, called the Pension Benefit Adjustment Account (“PBAA”). On the implementation date of the New Plan, an amount equal to the Initial Surplus was credited to the PBAA, along with an amount from the SAA attributable to MTS plan members and a matching amount from MTS.
[40] Similar to the Old Plan, the New Plan Text provided that a percentage of ongoing contributions made by employees would be credited to the PBAA. In the New Plan, employee contributions to the PBAA are matched by MTS at the time they are made. Further, each month the PBAA was credited with certain interest. The interest credited to the account was not based on the plan fund’s actual rate of return. Instead, MTS applied an interest rate based on “the average of the yields of five (5) year personal fixed term chartered bank deposit rates”, referred to as the CANSIM rate and commonly used for pension plans (A.R., vol. VIII, at p. 39). Between 1997 and 2006, the CANSIM rate was more stable but on average lower than the actual rate of return of the plan fund. When COLA payments were paid to plan members from the New Plan’s fund, the PBAA was debited accordingly for the amounts paid.
[41] The New Plan Text, again reflecting the terms of the MOA, provided that MTS would provide monthly COLA of at least 2/3 of CPI, up to a maximum CPI of 4 percent. Further, the New Plan Text, like the Old Plan but not as required by the MOA, provided that the plan actuary’s discretion to authorize enhanced COLA beyond the guaranteed minimum was constrained by the 20-year rule. In other words, the plan actuary could authorize COLA at a rate that exceeded the 2/3 CPI minimum only if there were sufficient funds credited to the PBAA to support monthly COLA at that rate for the next 20 years.
[42] However, the trial judge concluded as a finding of fact that despite the placement of the Initial Surplus in the COLA account, “the 20 year [rule] was incapable of ever being reached by virtue of the manner in which the COLA account was set up” (para. 320). I infer that this conclusion was based on a combination of factors. One was that each month the percentage of total contributions to the pension trust fund credited to the PBAA, as provided for by the New Plan Text, was inadequate to fund the monthly guaranteed COLA debited to the PBAA. This factor was noted as early as May of 1996 in a report prepared for MTS regarding transitional issues. The report stated that “[s]tipulated contributions to the adjustment account . . . are probably not adequate to provide cost-of-living benefits at the level granted in recent years” (A.R., vol. VI, at p. 120). A second factor was the use of the relatively stable but low CANSIM rate, also provided for by the New Plan Text, to calculate the interest credited to the PBAA.
[43] These two factors contributed to the debits to the PBAA, over time exceeding credits to that account. (The plan members also argued that the assets credited to the PBAA at the implementation date were insufficient to pay for the guaranteed COLA accrued as of that date.) As a result, each year the account moved further and further away from meeting the 20-year rule imposed by the New Plan Text. For example, by January 1, 2005, the PBAA was at a surplus of $15 million but would require an additional $192 million to fulfill the 20-year rule, while by January 1, 2008, the PBAA was at a deficit of almost $17 million and would require an additional $240 million to fulfill the 20-year rule. The Court of Appeal did not find fault with the trial judge’s finding of fact that the 20-year rule was impossible to meet under the provisions of the New Plan Text. Rather, it dismissed the issue on the basis that the plan members accepted the New Plan Text and that the PBAA was operated in accordance with the MOA and the New Plan Text. Although MTS argued before this Court that the finding of the trial judge constituted a palpable and overriding error, it only made general statem