Court Response to Modification of Retiree Benefits: What don't you understand about a deal is a deal is a deal?

Posted by Sharaf Sultan on March 19, 2012

The recent decision of the Supreme Court of British Columbia in Lacey v. Weyerhaeuser Company Limited, 2012 BCSC 353 found that employers do not have the right to change the terms of promised retiree benefits once an employee retires.

The five plaintiffs in this case were retirees of Weyerhaeuser and its predecessor, MacMillan Bloedel.  The terms of their employment included the right to retiree health benefits and for it to be fully paid for by the company.  The plaintiffs all retired between 1991 and 2000.  The company later on January 1, 2010 stated that it was reducing its health benefit contributions from 100% to 50% and that retirees would be responsible for future cost increases.  The plaintiffs subsequently sued for breach of contract.

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Supreme Court of Canada Grants Leave to Appeal Re Indalex, 2011 ONCA 265

Posted by Mark Newton on December 20, 2011

On December 1, 2011, the Supreme Court of Canada granted leave to appeal the decision of the Ontario Court of Appeal in Re Indalex Limited, 2011 ONCA 265, which we summarized here.

Indalex Limited and its U.S. parent sought protection from their creditors under the Companies Creditors Arrangement Act and under Chapter 11 of the U.S. Bankruptcy Code. The court authorized a loan under a debtor-in-possession (“DIP”) credit agreement and gave the lenders a super-priority charge against Indalex’ assets. When the assets of Inalex were sold, two groups of pension plan members argued that a portion of the proceeds should be reserved for payment of pension fund deficiencies. Despite the super-priority granted under the DIP loan, the Court of Appeal found in favour of the pension plan members, holding that that the deemed trust provisions in the Ontario Pension Benefits Act in respect of the Salaried Pension Plan that had been wound up prior to the CCAA proceedings was effective as against the guarantor of the DIP loan. The court also applied a constructive trust in respect of the deficiency in the Executive Pension Plan that had not been wound up.

The decision came as a surprise to most pension and insolvency practitioners. It has potentially far-reaching implications for lending transactions and has already found its way into the negotiation of financing agreements. It has also created uncertainty about the extent of an employer’s fiduciary obligations in its role as pension plan administrator and how conflicts in corporate sponsor and administrator roles may be resolved.

We will continue to follow this case and will update our readers again when the Supreme Court releases its decision.

Risk-Based Pension Regulation in Ontario

Posted by Mark Newton on December 20, 2011

On September 21, 2011, the Financial Services Commission of Ontario (FSCO) released its Risk-Based Framework Document, which describes a broad-based framework for the risk-based regulation of pension plans in Ontario. The Framework represents an enhanced form of risk monitoring by FSCO.

The proposed Framework will consider a broad universe of risk factors in areas such as administration, governance, and sponsor related risks. The Framework’s goal is to provide a base level of regulation across all pension plans which will include monitoring key risk indicators, improved dialogue with stakeholders, and promotion of best-practices.

 

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Canadian Association of Pension Supervisory Authorities Releases Pension Plan Governance Guidelines

Posted by Mark Newton on December 05, 2011

On November 15, 2011, the Canadian Association of Pension Supervisory Authorities (CAPSA) released two guidelines on pension plan governance. These guidelines outline the expectations relating to the investment of pension plan assets, as well as best practices when developing and adopting a funding policy for pension plans that provide defined benefits.

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US Steel Hamilton lockout finally ends, with predictable outcome

Posted by Greg McGinnis on October 16, 2011

On October 15, 2011, workers at US Steel's "Hilton Works" in Hamilton voted to accept the Company's final offer, ending a lockout that had begun over 11 months earlier.  This lockout represented the longest labour-management confrontation in Hamilton labour history, and ended in a settlement that many regard as a foregone conclusion, despite the Union's long and determined struggle to maintain the status quo.  (The best descriptions of the ongoing dispute can be found in the Hamilton Spectator, including the most recent article written by Steve Arnold). 

A copy of the terms of the agreement can be found here: US Steel-USW Tentative Agreement Oct 2011.pdf

At some level, USW Local 1005 members and its executive "took one for the team" by holding out for so long, in what many outsiders (including this author) regarded as an impossible struggle.

The defining issues in the lockout were economic, the largest one being the Company's demand for concessions on the pension plan.  The Company wanted to de-index pension benefits for current and future retirees under the existing defined-benefit pension plan, and close the defined-benefit plan to any new employees.  Instead, new employees would have their retirement security provided through a group RRSP, and the company's liabilities would be capped at its per-hour contributions.

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Indalex Decision Gives Priority to Pensions in Corporate Insolvency

Posted by Jackie Vandermeulen on July 27, 2011

Pensions, Document, Files.jpgThe Indalex decision, released by the Ontario Court of Appeal earlier this year, gave priority to pension plan members over other secured creditors that had advanced funds to keep Indalex from bankruptcy.  This case came as a surprise to many practitioners and may have far-reaching implications for pension plan administrators and creditors alike. 

Background

Indalex Limited filed for protection under the Companies' Creditors Arrangement Act (CCAA) in 2009. The CCAA Court authorized a loan to Indalex and, in exchange, gave the debtor-in-possession (DIP) lender a super priority over “all other security interests, trusts, liens, charges, and encumbrances, statutory or otherwise.”  This loan was guaranteed by Indalex U.S., Indalex’s parent organization.  When the sale of Indalex was subsequently approved by the CCAA Court, the DIP lender understood that it would have priority over other creditors. 

Indalex was the sponsor and administrator of two underfunded pension plans.  The pension plan members argued that the sale proceeds should first fund the pension plans’ deficiencies, which amounted to $6.75 million.  The first plan, the Executive Plan, had not been wound up as of the date of the CCAA filing.  The second plan, the Salaried Plan, was wound up in 2006 – prior to the filing of CCAA.  The CCAA Court ruled that the sale assets were properly paid to the DIP lender. 

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