Pensions, Benefits & Executive Compensation Newsletter – April 2020

Welcome to the 27^th issue of the Blakes Pensions, Benefits & Executive Compensation Newsletter. This newsletter provides a summary of recent jurisprudential developments that affect pensions and benefits and is not intended to be legal advice.

For additional information or to discuss how any aspect of these developments may affect you, please contact a member of the Blakes Pensions, Benefits & Executive Compensation group.

IN THIS ISSUE

BENEFICIARY DESIGNATIONS

• Earl v. McAllister, 2019 ONSC 7288

INTERPRETATION OF PENSION PLAN TERMS

• Austin v. Bell Canada, 2020 ONCA 142

FAMILY LAW

• Kraft v. Kraft, 2020 BCSC 283

• Miaskowski v. MacIntyre, 2020 ONCA 178

JURISDICTION OF A PENSION PLAN

• Canada (Attorney General) v. Northern Inter-Tribal Health Authority Inc., 2020 FCA 63

COLLECTIVE BARGAINING

• Teamsters Canada Rail Conference, Division 660 v. Bombardier Transportation – North America, 2020 CanLII 12641 (ON LRB

HEALTH AND WELFARE BENEFITS

• Hutton v. The Manufacturers Life Insurance Company (Manulife Financial), 2019 ONCA 975

BENEFICIARY DESIGNATIONS

Earl v. McAllister, 2019 ONSC 7288

Leo McAllister (Deceased) died after a battle with cancer and left behind two minor children (Boys). Tammy McAllister (Applicant), the former spouse of the Deceased, brought an application for support on behalf of the Boys against the Deceased’s surviving spouse, Barbara McAllister (Respondent). At the date of his death, the Deceased held entitlements under two union-sponsored pension plans. The Respondent was the designated beneficiary for purposes of the first pension plan (Pension 1). The Deceased signed the consents required to transfer the designated beneficiaries in Pension 1 from the Respondent to the Boys, and, while these were mailed out, the forms were never received by the plan administrator. The second pension plan (Pension 2) provided a pre-retirement surviving spouse a lump sum payment of C$88,177.40. The Respondent, as the Deceased’s surviving spouse, elected to take the payment by way of monthly payments of C$376 for life.

The Applicant submitted that the evidence was that the Deceased intended to change the beneficiaries for both Pension 1 and Pension 2, and that the entire value of the Deceased’s estate—including benefits accumulated under Pension 1 and Pension 2—go to the Boys. The Respondent’s evidence was that the Deceased intended only that the Boys receive the benefit of his entitlements under Pension 1, as it was strictly the beneficiary designation form for Pension 1 that he signed and sent to the plan administrator.

The issue before the Ontario Superior Court of Justice (O.N. Superior Court) was whether the surviving spouse’s benefit under Pension 2 should be included in the assets of the estate under subsection 72(1)(g) of the Ontario Succession Law Reform Act (SLRA) for the purposes of determining dependent support.

The O.N. Superior Court reviewed the relevant case law in its analysis, including Cotnam v. Rousseau, 2018 ONSC 216 (Cotnam), which was discussed in our July 2018 Blakes: Pensions Newsletter. In Cotnam, the O.N. Superior Court determined that spousal priority for a pre-retirement death benefit in section 28 of the Ontario Pension Benefits Act did not shield pre-retirement death benefits paid to a spouse from being clawed back under subsection 72(1)(g) of the SLRA. In the case at hand, the O.N. Superior Court did not agree with the Cotnam decision. The Court concluded that subsection 72(1)(g) of the SLRA is clear in its wording and only includes amounts payable pursuant to a designation of beneficiary. The pre-retirement surviving spouse benefit payable under Pension 2 is not paid pursuant to a designation of beneficiary, but rather to the Respondent in her capacity as the surviving spouse. Therefore, the O.N. Superior Court held that the pre-retirement death benefit payable to the Respondent under Pension 2 was not to be included in the Deceased’s assets for purposes of the relief application under the SLRA.

Ontario Superior Court of Justice Decision

INTERPRETATION OF PENSION PLAN TERMS

Austin v Bell Canada, 2020 ONCA 142
 
This class action proceeding involved consideration of a single provision in the Bell Canada Pension Plan (Plan). The sole issue before the Ontario Court of Appeal (O.N. Appeal Court) was the proper calculation of the cost-of-living adjustment under the Plan and, accordingly, whether Bell Canada (Administrator) was entitled to round the Consumer Price Index (CPI) used to calculate annual cost of living increases to the nearest two decimal points. The difference to the class members as a result of the rounding was over C$10-million for the first year and estimated that it could be a larger amount over the long-term.

A long-time employee of the Administrator (Appellant) issued a class action on behalf of approximately 35,000 pensioners who were beneficiaries of the Plan. The dispute focused on the Plan’s definition of Pension Index and how this definition worked in the context of the Plan as a whole, particularly in respect of the provision governing the calculation of the cost-of-living adjustment.  At the lower court, the Administrator was successful in having the action dismissed on summary judgment. As discussed in our October 2019 Blakes: Pensions Newsletter, the motion judge’s decision turned on the definition of Pension Index and the calculation of the annual indexation increase. The O.N. Appeal Court concluded that the appeal must be allowed.

While the O.N. Appeal Court agreed with the motion judge on a number of issues regarding the interpretation of the definition of Pension Index, the O.N. Appeal Court found that the motion judge made a palpable and overriding error of fact or an extricable error of law, or both, in that his decision ignored uncontradicted evidence which did not render the cost-of-living adjustment provision “meaningless” or “partly meaningless,” contrary to his findings.

For these reasons, the O.N. Appeal Court set aside the motion judge’s dismissal of the action and awarded summary judgment in favour of the Appellant.

Ontario Court of Appeal Decision
 
FAMILY LAW

Kraft v. Kraft, 2020 BCSC 283

Mr. and Ms. Kraft were married for over 27 years. During that time, Mr. Kraft became entitled to a defined benefit pension under his employer’s pension plan. In 1997, Mr. Kraft separated from Ms. Kraft and began living with Ms. Kempenaar. Mr. Kraft and Ms. Kraft formally divorced in 2015. At the time of his retirement in 2015, Mr. Kraft had been cohabitating with Ms. Kempenaar for 18 years. At the initial trial, Mr. Kraft’s pension income was divided equally between himself and Ms. Kraft, as discussed in our July 2018 Blakes: Pensions Newsletter. On appeal, the British Columbia Court of Appeal (B.C. Appeal Court) dismissed the appeal, but remitted the issue of survivor benefits back to the Supreme Court of British Columbia (B.C. Supreme Court) for reconsideration.

In arriving at its decision that Mr. Kraft’s survivor benefits should be shared equally between Ms. Kempenaar and Ms. Kraft should Mr. Kraft predecease them, the B.C. Supreme Court looked at the interplay between the B.C. Family Law Act (FLA) and the B.C. Pension Benefits Standards Act (PBSA).

Sections 80(1) and (2) of the PBSA indicate that a pension plan must entitle a person who qualifies as a spouse at the time a pension matures to a survivorship interest of at least 60 per cent. Pursuant to section 1(3) of the PBSA, Ms. Kempenaar was Mr. Kraft’s spouse at the time the pension matured. Despite Ms. Kempenaar’s apparent priority to a survivorship interest under the PBSA, the FLA contemplates situations where another person may have an interest in pension benefits. The B.C. Supreme Court noted that sections 126(2)(b) and (3)(a) of the FLA appear to provide a mechanism for overriding the presumptive entitlement of a member’s spouse as of the date the pension matured.

The B.C. Supreme Court noted that Mr. Kraft accrued a pension while married to both Ms. Kraft and Ms. Kempenaar, giving both spouses a strong claim to a survivorship interest in Mr. Kraft’s pension. The Court determined that a finding that Ms. Kempenaar became fully entitled to the survivor benefit by virtue of being Mr. Kraft’s spouse at the time he retired would fail to recognize Ms. Kraft’s contributions to that asset. The Court held that section 126(b) of the FLA was intended to remedy circumstances where it would be unjust and inequitable to completely disentitle a competing spouse from the benefit, given the competing spouse’s contribution to the marriage and to the member’s ability to accrue a pension. Accordingly, the survivor benefits were divided in equal portions between Ms. Kraft and Ms. Kempenaar.

Supreme Court of British Columbia Decision
 
Miaskowski v. MacIntyre, 2020 ONCA 178

Ms. MacIntyre and Mr. Miaskowski (Parties) separated twice during their marriage. Two and a half years after the first separation, the Parties entered into a separation agreement which contained a number of releases, including a release by Ms. MacIntyre of her rights in Mr. Miaskowski’s pension. Additionally, the separation agreement contained a reconciliation clause which voided the separation agreement if the Parties reconciled for more than 90 days. As an exception to the voiding provision, “any payment, conveyance or act” done under the agreement would not be invalidated.

The Parties remained married and eventually reconciled four years after they signed the separation agreement and remained together for nine more years before separating a second time. The main issue at trial, and the only issue on the appeal, was the extent of the Ms. MacIntyre’s entitlement to share in the value of Mr. Miaskowski’s pension given the reconciliation and voiding clauses contained in the separation agreement. If Ms. MacIntyre’s release of any claim to Mr. Miaskowski’s pension was voided when the Parties reconciled for more than 90 days, then the value of Mr. Miaskowski’s pension would be calculated using the date of marriage as the starting date. If, on the other hand, Ms. MacIntyre’s release of any claim to Mr. Miaskowski’s pension survived the Parties’ reconciliation of more than 90 days, then the value of the pension would be calculated using the date of the reconciliation as the starting date.

The trial judge held that the specific pension release clause was not voided by the Parties’ reconciliation. The trial judge referenced the Ontario Court of Appeal’s (O.N. Appeal Court) decision Sydor v. Sydor, 178 OAC 155 (Sydor), in which the court explained the common law rule that a separation agreement is void upon reconciliation “subject to a specific clause in the agreement that would override the common law.” In Sydor, the courts also stated that “a specific release of all rights to a particular property can be viewed as evidence that the parties considered the disposition of that property final and binding, regardless of what may occur in the future.” The trial judge found that Ms. MacIntyre’s release of any claim or right to Mr. Miaskowski’s pension was the kind of “specific release” referred to in Sydor and survived the Parties’ reconciliation.

In overturning the trial decision, the O.N. Appeal Court found that the trial judge erred in (i) his finding that the equalization payment made to Ms. MacIntyre under the separation agreement included the value of her share of the pension up to the date of separation, and (ii) his interpretation and application of the separation agreement by failing to give effect to the reconciliation clause that voids the agreement upon reconciliation for more than 90 days. With respect to the first error, the O.N. Appeal Court found clear evidence that the equalization payment Ms. MacIntyre received was related to the sale of the matrimonial home and did not include the value of Mr. Miaskowski’s pension. Thus, there was no “payment, conveyance or act” as contemplated by the voiding provision of the separation agreement. The O.N. Appeal Court found that the voiding provision in the reconciliation clause, and not its exception, applied to the pension release. With respect to the second error, the O.N. Appeal Court found that the language of the voiding clause in the separation agreement clearly demonstrated the Parties’ intention to return to the position they were in prior to the separation, once a reconciliation of more than 90 days occurred. Although the clause also provided that it was not necessary to undo conveyances or transfers that have been completed, the O.N. Appeal Court found that no such conveyance was made respecting Ms. MacIntyre’s entitlement to the value of Mr. Miaskowski’s pension.

Accordingly, the O.N. Appeal Court held that the release of Ms. MacIntyre’s right to share in the pension was void and she was entitled to receive a share of Mr. Miaskowski’s pension from the date of marriage to the date of the second separation.

Ontario Court of Appeal Decision
 
JURISDICTION OF A PENSION PLAN

Canada (Attorney General) v. Northern Inter-Tribal Health Authority Inc., 2020 FCA 63

Peter Ballantyne Cree Nation Health Services Incorporated (PBCNHS) and Northern Inter-Tribal Health Authority Inc. (NITHA) were non-profit health services corporations that delivered health services to the Peter Ballantyne Cree Nation, pursuant to health agreements with the federal government. PBCNHS and NITHA successfully brought an application for judicial review to the Federal Court of Canada (Federal Court) in respect of the Office of the Superintendent of Financial Institutions’ (OSFI) decision that the pension plans of PBCNHS and NITHA do not fall under federal jurisdiction and must be registered provincially. The Federal Court’s decision was discussed in our January 2019 Blakes: Pensions Newsletter.

In granting the appeal, setting aside the Federal Court’s decision, and dismissing PBCNHS and NITHA’s application for judicial review, the Federal Court of Appeal (Appeal Court) held that OSFI had in fact correctly interpreted subsection 4(4) of the Pension Benefits Standard Act, 1985, which requires it to consider who has the “legislative authority” to regulate an entity’s undertakings. The Appeal Court also found that OSFI had correctly applied the test set out in NIL/TU,O Child and Family Services Society v. B.C. Government and Services Employees’ Union, 2010 SCC 45 (NIL/TU,O), which requires decision makers to “examine the nature, operations and habitual activities” of an entity to see if it is a federal undertaking.

The Appeal Court determined that Federal Court had erred in its application of NIL/TU,O. Rather than focusing on which level of government had the legislative authority to regulate the PBCNHS and NITHA’s undertakings, and rather than strictly following NIL/TU,O, the Federal Court focused on the terms of the Treaties, the importance and solemnity of the Treaties, and section 35 of the Constitution Act, 1982, which recognizes and affirms treaty rights. In doing so, the Federal Court failed to engage in a functional examination of the nature of PBCNHS and NITHA’s undertakings as going concerns. The Appeal Court held that while the federal government can discharge its obligation under the Treaties by providing funding for indigenous health care, the provision of federal funding by itself does not convert an otherwise provincial undertaking into a federal one.

Federal Court of Appeal Decision
 
COLLECTIVE BARGAINING

Teamsters Canada Rail Conference, Division 660 v Bombardier Transportation - North America, 2020 CanLII 12641 (ON LRB)
 
This case was brought before the Ontario Labour Relations Board (Board) as an application under the Labour Relations Act, 1995 (Act) alleging violations of certain sections of the Act. The dispute in this matter arose out of negotiations for the renewal of a collective agreement between the union, Teamsters Canada Rail Conference, Division 660 (Union) and the employer, Bombardier Transportation – North American (Employer).

The Union alleged that the reason the parties had not finalized a collective agreement was due to the inflexibility of the Employer. Specifically, the Union alleged that the Employer refused to disclose details of the pension plan that applied to the employees in the bargaining unit (Pension Plan) and increased rates of administrative fees of members. The Employer denied all allegations that it had acted unlawfully and requested that the application be dismissed.

Early in the bargaining process, the Union requested a copy of the contract between Comite de Placement Bombardier Trust (Canada) and the custodian regarding the administration of the Pension Plan (Pension Contract) to review only those provisions that pertained to its bargaining unit members. The Union wanted to assess the portability of the pension and the increase in the administrative fees to plan members. At the time, the Employer indicated it was prepared to discuss the Union’s pension concerns. Several months later, the Employer refused to provide the Union with a copy of the Pension Contract, despite the Union’s suggestion that the Employer redact all provisions irrelevant to the bargaining unit. The Employer did, however, indicate they were open to discussions and offered to entertain any questions by the Union’s bargaining committee concerning the Pension Plan, which the Union refused.

With respect to the increase in administrative fees, the Board noted that the Union never took the position in this case or during the bargaining process that it was entitled to see information about the administrative fee increase in the Pension Contract based on the fee increase being too high or unreasonable. The Union did not challenge the fee in any way. It simply wanted to see the Pension Contract to ascertain how the administrative fee was calculated, who among the custodian and Employer had input into the fee and to provide suggestions on how the value of the fee might be put to greater advantage for the benefit of plan members.

The Board found that there was a continued effort by the Employer to engage with the Union in the bargaining process to address the Union’s pension concerns, including the administrative fee increase. The Union failed to take up the Employer’s offer to consider specific questions from the bargaining unit and the Union did not develop any proposals regarding the Pension Plan to discuss with the Employer. The Board therefore declined to find a violation of the Act in respect of the pension issues.

Ontario Labour Relations Board Decision
 
HEALTH AND WELFARE BENEFITS

Hutton v. The Manufacturers Life Insurance Company (Manulife Financial), 2019 ONCA 975

Ms. Hutton was employed by Quinte Healthcare Corporation (QHC) and was a member of the Ontario Public Service Employees Union (OPSEU). QHC and OPSEU were parties to a collective agreement governing the terms and conditions of Ms. Hutton’s employment (Collective Agreement). QHC contracted with The Manufacturers Life Insurance Company (Insurer) to provide group benefits, including life insurance and long-term disability (LTD) benefits, to eligible employees. Ms. Hutton claimed that she was disabled as a result of her injuries from an automobile accident and sought LTD benefits under the terms of the Collective Agreement. The Ontario Court of Appeal (O.N. Appeal Court) was asked to determine whether the court had jurisdiction over Ms. Hutton’s claim against the Insurer or whether the claim was subject to grievance and arbitration under the Collective Agreement.

The Collective Agreement provided that eligible employees were entitled to LTD benefits under the Hospitals of Ontario Disability Income Plan (HOODIP) or an equivalent plan. The Collective Agreement also provided for resort to the insurance company’s appeal process prior to filing a grievance. Ms. Hutton’s claim was initially approved by the Insurer. However, after a review of her file, Ms. Hutton was advised that she no longer met the criteria to receive LTD benefits under the Insurer’s policy. Ms. Hutton filed a grievance with QHC following the grievance procedure set out in the Collective Agreement. With her grievance still outstanding, Ms. Hutton also commenced an action against the Insurer for, among other things, breach of contract, entitlement to LTD benefits and punitive damages for “bad faith.” The Insurer brought a summary judgment motion to dismiss Ms. Hutton’s claim on the ground that the court lacked jurisdiction over the claim as it arose out of the Collective Agreement and was subject to exclusive arbitral jurisdiction under the Collective Agreement.

The motion judge held that Ms. Hutton’s entitlement to LTD benefits fell within the exclusive grievance and arbitration provisions of the Collective Agreement and was, therefore, subject to arbitral jurisdiction. In doing so, the motion judge concluded that Ms. Hutton’s entitlement to LTD benefits, and QHC’s obligation to provide them, were rooted in the Collective Agreement. In agreeing with the motion judge’s decision and dismissing Ms. Hutton’s appeal, the O.N. Appeal Court noted that the Collective Agreement referred only to HOODIP, and contemplated that employees would be entitled to the level of coverage provided by HOODIP. QHC’s obligations under the HOODIP plan formed part of the Collective Agreement. This alone is enough to conclude that the grievance and arbitration provisions of the Collective Agreement apply to LTD disputes.

Ontario Court of Appeal Decision