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Metcalf & Company Barristers & Solicitors' Submission in Response to Finance Canada's Regulatory Framework for Federally Regulated Defined Benefit Pension Plans consultation:

September 15, 2005

Diane Lafleur
Financial Sector Policy Branch
Department of Finance
L'Esplanade Laurier
20th Floor, East Tower
140 O'Connor Street
Ottawa, ON K1A 0G5

Dear Ms. Lafleur:

Re: Submission to the Committee Reviewing the Public Benefits Standards Act, 1985 – "Strengthening the Legislative and Regulatory Framework for Defined Benefit Pension Plans Registered under the Pension Benefits Standards Act, 1985"

A group of disgruntled former employees and pensioners of Marine Atlantic Inc. have formed a committee to represent those employees and pensioners who were not afforded a distribution of the surplus which accrued in the Marine Atlantic Pension Plan (the "Pension Plan") at the time of their termination from the Company during the period 1997 – 2000 (the "Committee"), commencing with the August 15, 1995 decision of the management of Marine Atlantic to implement a substantial reduction in the workforce over a five year period.

The undersigned is a member of the Committee, a former employee of the Company and is acting as one of its legal counsels in this matter. The undersigned is submitting this brief on the Committee's behalf. The Committee agrees to have its written submissions posted for public survey on the PBSA Review Committee's website.

Three specific partial terminations of the Pension Plan were submitted to the Office of the Superintendent of Financial Institutions during the 1997-2000 period as follows:

1. Partial Plan Wind-Up Report – March 1997 – Bay of Fundy Service;

2. Partial Plan Wind-Up Report – September 1997 – PEI Service;

3. Partial Plan Wind-Up Report – December 2001 – Labrador Service and Moncton Head Office;

These Marine Atlantic employees were terminated by the Company without being provided with a distribution of their portion of the surplus funds in the Pension Plan at the time of their terminations. Instead, the Company, in 1999 and 2000 provided a "pension holiday" for then current employees of the company as part of the wage negotiations between management and the employees during those years. Thus, the Company used the pension surplus to satisfy wage and benefit demands of existing employees without making any payment or improved pension benefits to previous employees or pensioners whose contributions to the Pension Plan in prior years gave rise to the surplus which was paid out in 1999 and 2000.

An attempt by the Committee to have the Office of the Superintendent of Financial Institutions (OSFI), the Federal Government agency responsible for monitoring all Federal Government pension plans, require Marine Atlantic to redress this situation was refused. In a ruling dated August 8, 2005 OSFI denied the Committee's requests for an order requiring Marine Atlantic to:

1. refile the partial termination reports filed with respect to the PEI Service, the Bay of Fundy Service and the Labrador/Moncton Head Office Service during the period 1997-2000; and

2. include a calculation of the pension surplus available at those times; and

3. include a plan on how the surplus was to be distributed to the employees who were being terminated.

The Committee has now applied to the Federal Court of Canada for a judicial review of OSFI's August 8, 2005 decision. The application was filed by the Committee's Toronto legal counsel, Mr. Ari Kaplan of the Koskie Minsky law firm, within the 30 days required by the Federal Court of Canada. The application will therefore be heard in the Federal Court of Canada in the coming months.

Mr. Kaplan was involved in the leading case on the partial termination of pension plans in the Supreme Court of Canada, namely the 2004 Monsanto Canada Inc. v. Ontario Superintendent of Financial Services, which established the principle that employees involved in partial terminations of pension plans, as regards distribution of pension plan surpluses, must be treated in the same manner as pensioners and employees when a pension plan is totally terminated.

The Committee is made up of the following former employees of the Company:

1. Chairperson: Donna Keith – Ms. Keith last held an administrative position at the Company's head office in Moncton and was terminated in 2002. She opted to remove her pension funds from the Pension Plan and invest them herself. She did not receive any portion of the Pension Plan surplus which existed at that time;

2. Philip Mountain – Mr. Mountain held the position of Operations Manager of the Bay of Fundy Service when he was terminated in 1998. He opted to remove his pension funds from the Pension Plan and invest them himself. He did not receive any portion of the Pension Plan surplus which existed at that time.

3. Mr. Dana Cousins – Mr. Cousins was terminated during the 1997 partial termination of the Pension Plan when the Bay of Fundy Service was closed. He did not receive any portion of the Pension Plan surplus which existed at that time;

4. Ms. Nancy Cousins – Ms. Cousins was terminated during the 1997 partial termination of the Pension Plan when the Bay of Fundy Service was closed. She did not receive any portion of the Pension Plan surplus which existed at that time;

5. Mr. Charles McNally – Mr. McNally was terminated during the 1997 partial termination of the Pension Plan when the PEI Service was closed. He did not receive any portion of the Pension Plan surplus which existed at that time;

6. Mr. Chris Kenny – Mr. Kenny was terminated during the 1997 partial termination of the Pension Plan surplus which existed at that time. He did not receive any portion of the Pension Plan which existed at that time;

7. Ms. Linda Waite – Ms. Waite was terminated during the 1997 partial termination of the Pension Plan surplus which existed at that time. She did not receive any portion of the Pension Plan surplus which existed at that time;

8. Mr. Jim Youden - Mr. Youden is a former corporate officer of Marine Atlantic Inc. His employment with Marine Atlantic was terminated on November 1, 1995 when Marine Atlantic, as part of the workforce reduction commenced in August 1995, closed the Law & Risk Management Department in its entirety. Mr. Youden left his pension funds in the Pension Plan and became a pensioner of Marine Atlantic in July 2002. The benefits in the Pension Plan accruing to Mr. Youden were frozen as of his termination date (November 1, 1995) and he has received no benefit from the Pension Plan surplus which existed at that time, either by way of cash settlement or Pension Plan improvement.

9. Mr. Harry Pardy – Mr. Pardy was employed in the Labrador Service when his employment was terminated in 1997 as part of the closure of the Labrador/Moncton Head Office Services. He did not receive any portion of the Pension Plan surplus which existed at that time;

The Committee also complained about the Company's actions regarding the Pension Plan surplus to the Minister of Finance, The Honorable Ralph Goodale. By letter dated June 26, 2005 Mr. Goodale advised:

"On a related matter, you should be aware that the Department of Finance recently released a consultation paper entitled Strengthening the Legislative and Regulatory Framework for Defined Benefit Pension Plans Registered under the Pension Benefits Standards Act, 1985, ....

You should note that the paper addresses many issues related to federally regulated defined benefit plans including the distribution of pension plan surpluses and a range of options respecting pension plan terminations, which could result in legislative changes to the Pension Benefits Standards Act, 1985 and its regulations. I would encourage you and your former colleagues to participate in this process by making a formal submission."

In accordance with Mr. Goodale's suggestion the Committee has decided to submit this brief to your Pension Benefits Standards Act Committee (the "PBSA Review Committee") to provide the Committee's views on the distribution of pension surpluses in partial termination situations.

The failure of the Company to distribute the Pension Plan surplus to terminated employees is not a new issue for Marine Atlantic employees and pensioners. A group of employees and pensioners from the PEI Service wrote to the then Minister of Industry, Mr. Brian Tobin, on 9 April 2001. They did not receive a satisfactory response and indeed no governmental action ensued as a result of this petition of assistance. A copy of this letter is enclosed herewith for your easy reference.

The Committee believes that the Company's actions with respect to the administration of the pension surplus are unfair and contrary to law. To date the Company has maintained an adversarial stance in its responses to the Committee's concerns. The Committee believes that it will require a Federal Court of Canada decision and Federal Government intervention to have this problem addressed equitably for all Marine Atlantic pensioners and former employees involved.

The Committee estimates that hundreds of former employees and pensioners of the company's Halifax, Moncton, Yarmouth, St. John's offices and its PEI, Bay of Fundy and Labrador services could be affected by Marine Atlantic's failure to properly account for and distribute the Marine Atlantic Pension Plan surplus during the workforce reductions which took place in the 1995-2000 period.

For your information a number of meetings will be held in Atlantic Canada during the latter part of September to review the judicial review application process with the affected former employees and pensioners. The Committee has intends to set up a website on the internet for the use of interested parties.

Please accept this letter as the Committee's submission regarding its position relating to the pension surplus distribution issue arising under the Public Benefits Standards Act, 1985.

Issue:

This submission deals with the distribution of pension plan surpluses when a pension plan is partially terminated as occurred on several occasions during the 1990's within Marine Atlantic Inc., a parent Crown corporation of the Federal Government of Canada.

The issue being raised by the Committee is the same as that stated by the Ontario Court of Appeal in the Monsanto case as follows:

"The central issue in this case is whether an employer who implements a partial wind up of its defined benefit pension plan has a legal obligation to distribute that part of the actuarial surplus then in the plan that is attributable to the members of the plan who are affected by the partial wind up."

The Supreme Court of Canada addressed this issue and found in favor of the employees. A partial termination of a pension plan must be treated the same as a complete termination of a pension plan. The Committee believes the surplus in the Marine Atlantic Pension Plan at the times of the restructurings in the 1990s belonged to the employees. The discussion following addresses this position.

Background:

Commencing with a memorandum to employees dated August 15, 1995 the then President of Marine Atlantic Inc., Mr. Rod Morrison, outlined a workforce reduction scheme within the Company which would lead to a significant downsizing of the Company's workforce. The scheme was implemented immediately thereafter on November 1, 1995 with the closure of the Law and Risk Management Department. It continued with the closures of the Bay of Fundy Service, the PEI Service, the Labrador Service and the Moncton Head Office. Some of the employees affected left their pension funds within the Pension Plan while others opted to take their pension entitlement with them to invest as they saw fit in accordance with their personal circumstances. As the Committee understands the process at the time, no discussion was initiated by the Company nor the employees about the treatment of the surplus in the Pension Plan at the time of the partial terminations of the Pension Plan.

Therefore as the Company continued its workforce reductions in the years following 1995, no consideration was given to any distribution of pension surplus for the benefit of each of the terminated employees at the time of their termination from employment. As previously advised the Company's Bay of Fundy service was closed in 1997, its PEI service in 1997 and its Labrador service and Headquarters office in 2000.

The end result of these closures was that hundreds of employees of the Company were terminated and given the choice, if permitted, to leave their pension funds within the Pension Plan or remove their funds from the Pension Plan and invest these funds in accordance with each terminated employee's decision based on their individual circumstances.

However, all of the terminated employees are aware that Marine Atlantic, in 1999 and 2000, after the downsizing of the employee base in the 1990's, did provide a "pension holiday" for remaining employees of the Company. Thus these employees not only retained their positions within the Company, but they gained improved benefits to the Pension Plan which occurred during their employment and, most grating of all, they received the added benefit of not having to contribute to the Pension Plan for the basic benefits nor for any improvements to the Pension Plan. The employees who were terminated in the 1990's and were forced to leave the Company before they reached pensionable status, were not apparently entitled to improvements to the Pension Plan which may have occurred in the interim between their termination date and the date they became entitled to a pension. This is unfair.

Additionally, those employees who removed their pension funds from the Pension Plan upon termination were denied their right to a distribution of the Pension Plan surplus which had accrued to the Pension Plan during their time of employment, and for which they contributed their share of the cost. Yet the employees who remained with Marine Atlantic, many of whom did not contribute in a meaningful way to the development of the surplus, received the benefit of the surplus in the guise of a "pension holiday". Where in the Pension Plan is it stated that such a holiday can be permitted? What legal advice did Marine Atlantic obtain before deciding to implement this "pension holiday" policy? Also, where is the justice in favoring one group of employees over another group in this manner?

Specific Illustrations:

As an illustration, at the time of his termination on November 1, 1995, Mr. Youden left his pension funds in the plan until his retirement date (July 21, 2002). He received no further improvement to his pension plan entitlement from the date of his termination on November 1, 1995 to the date of the commencement of his pension entitlement on July 21, 2002. In effect his pension benefits were frozen as of his termination date even though the Committee understands that the Pension Plan had a surplus in it at that time.

The Committee further understands that the Pension Plan has undergone improvements to the benefits offered during the intervening period and, as well, current employees were given a pension contribution holiday (1999-2000) which was financed by the surplus in the Pension Plan which accrued during the years of Mr. Youden's employment with the firm. He has not received any benefit from the surplus in the Pension Plan for which his personal pension contributions were at least partially responsible. As well, when one considers that the termination of my employment was a Company policy and not one voluntarily taken, the inequity is all the more apparent. No partial termination report was filed with OSFI Company with respect to Mr. Youden's termination.

As one can appreciate the situation is even more unjust for those, such as Philip Mountain, who took their pension funds with them. They did not receive any portion of the Pension Plan surplus which had accrued up to the date of their termination. The financial surplus in the Pension Plan at the time of the termination of their employment should have been distributed to them at the time of their termination. This would have allowed these employees to make use of these surplus funds together with their other pension funds to build a retirement fund to protect them in the future. They were denied the opportunity to manage their share of the Pension Plan surplus accruing to them for their future retirement benefit. No partial termination report was filed with OSFI by the Company with respect to Mr. Mountain's termination.

With respect to the terminations of Ms. Donna Keith, Ms. Linda Waite, Ms. Nancy Cousins, Mr. Dana Cousins, Mr. Harry Pardy and Mr. Charles McNally, partial termination reports were filed by the Company with OSFI. However no consideration was given in those partial termination reports to a distribution of the then existing pension plan surplus to entitled employees.

Discussion:

How could Marine Atlantic been able to decide on this unilateral "pension holiday" decision without contacting or receiving the approval of the appropriate regulatory bodies, such as the Office of the Superintendent of Financial Institutions, among others? If Marine Atlantic did seek such approvals, on what basis were they granted by these regulatory agencies?

As a fiduciary of the Pension Plan, does not the Board of Directors of Marine Atlantic have a duty to ensure that all beneficiaries of the pension plan are treated in an even handed and equitable manner? One would naturally assume that the duty on the administrators of the Pension Plan is to ensure that all beneficiaries share in the proceeds of any distribution of a pension surplus, and, at a minimum, that the interests of all parties be considered in any such distribution.

It is even more galling when one considers that the Company provided no recognition of the pension surplus by way of greater termination benefits to employees who were forced out of their employment with Marine Atlantic, but provided remaining employees a pension contribution "holiday" funded by this same surplus - a pension surplus which had accrued in the years when the terminated employees were full time employees! Thus long standing employees who were terminated by Company policy and mandate received no benefit from this surplus which they helped to create, while many employees who continued to be employed and did not contribute as long to the Pension Plan, received a direct financial benefit by the pension contribution "holiday".

Under the Monsanto decision, terminations of pension plan raise the surplus distribution issue. The Supreme Court of Canada in the Monsanto decision determined that employees in a partial termination situation were entitled to the same right to a distribution of any pension plan surplus as employees in a total termination of pension plan situation. Although Monsanto dealt with provincial pension plans, the principle still applies to Federal pension plans. Indeed the Office of the Superintendent of Financial Institutions ("OSFI") participated in the Monsanto decision with contrary arguments and lost. OSFI has now rendered a negative decision to the submission by the Marine Atlantic Pension Plan Surplus Committee seeking a distribution of the surplus accruing to the Marine Atlantic Pension Plan arising out of the partial terminations of the pension plan which occurred in the 1990's.

This request to OSFI by the Marine Atlantic Pension Plan Surplus Committee may have been the first submission of a partial termination of a pension plan to OSFI.

The developed law on the subject clearly states that partial terminations of pension plans are to be treated similarly to complete terminations of pension plans. Therefore there is no good and valid reason to:

1. delay calculation of the Pension Plan surplus during the relevant times; and

2. provide a list of the Marine Atlantic pensioners entitled to receive a direct financial benefit from such a pension surplus distribution. The surplus figures should be readily available from the pension records in the hands of Marine Atlantic. To date, Marine Atlantic has not provided these figures. The list of Marine Atlantic pensioners who should be entitled to share in this distribution should be also readily available from the Company's records. As you will note from the articles enclosed with the CMHC situation, the preparation of such a list of former employers and pensioners was not deemed to be an insurmountable obstacle for CMHC.

Clearly there cannot be any rational excuse to refuse a request from terminated employees for a proper distribution of a pension surplus which existed at the time of their termination when the same Company which terminated them saw fit to use the surplus to benefit remaining existing employees. Surely this "pension holiday" payment demonstrates that a surplus existed within the Pension Plan and that the surplus should be distributed to employees? The Company therefore recognized that the surplus belonged to employees but only paid it to current employees and not to the group of employees who played the largest role in the accrual of this surplus. This group of employees received no benefit from the pension surplus distribution by the Company. How can the Company be entitled to use pension funds in this manner? The Company avoided having to pay raises to current employees by giving them a distribution of a pension surplus to which these employees, at least in part, were entitled to receive in the first place!

The use by the Company of the "pension holiday" technique was a unilateral business decision to use trust funds in the Pension Plan to pay for current employment wages. Of course, this enabled the Company to avoid negotiations with their current employees on salary increases and other employment benefits. The Company simply paid a wage increase to the existing employees out of monies which should have been distributed to already terminated employees. As well, the "pension holiday" was able to continue for a longer period of time because all terminated employees and pensioners did not receive their rightful share in this surplus distribution. This is just one example of the inequities that can arise when equitable principles are not followed.

This is not a new issue. By way of history and examples, The Committee encloses the following news articles and correspondence which set out the importance of these issues in Canada at the present time:

1. A letter dated April 1, 2001 from the Marine Atlantic PEI Pensioners Committee to the then Minister of Industry, Brian Tobin, which raised these precise issues, without result;

2. An article from the Business Reporter of the Halifax Chronicle Herald relating to a lawsuit launched by Royal Trust pensioners in Nova Scotia regarding rights to a pension surplus;

3. An article from the Canadian Press regarding a class action suit by Royal Trust retirees against the Royal Bank of Canada regarding ownership of the pension surplus;

4. An article from the Canadian Press regarding CMHC's payment of its pension surplus to employees and retirees.

It is the Committee's hope that this unjust and inequitable situation can be rectified before many of the present pensioners who should have benefited from this Pension Plan surplus die.

The Committee herewith requests that the PBSA Review Committee take immediate steps to clarify this unfair situation and require OSFI to reverse its August 8, 2005 decision on the distribution of the Marine Atlantic Pension Plan surplus arising from the partial terminations of the Marine Atlantic Pension Plan. If this can only be achieved by a strong recommendation from the PBSA Review Committee that OSFI act quickly in demanding that Marine Atlantic distribute the Pension Plan surplus in an equitably manner, then so be it. Perhaps the political embarrassment of not following up on the Monsanto ruling and the PBSA Review Committee's recommendation will spur OSFI and the Federal Government to early action to rectify this inequitable situation.

The Committee takes exception to the statement in the Department of Finance's Consultation Paper that the current provisions of the PBSA do not require distribution on partial terminations of pension plans. This is a legal issue which is currently before the courts and the Committee believes it would be inappropriate to state what the PBSA "means" when a court of competent jurisdiction will be making that determination in the coming months. At least, there should be an amendment to the PBSA to confirm that the PBSA does in fact require distribution on a partial termination of pension plans.

ALL OF WHICH IS RESPECTFULLY SUBMITTED

Yours truly,

METCALF & COMPANY

Sgd. By JDY

James D. Youden

Encls.