A top labour lawyer is calling for government action to protect pensions after the Supreme Court ruled that a company can move pension plan money.
The court ruled Friday that Kerry Canada Inc. could transfer surplus cash from its defined-benefit pension plan to meet its obligations under a newer defined-contribution plan.
The court also concluded that the food company can pay its pension fund's "reasonable" administration costs from pension money.
The verdict could have implications for other companies that shift money between pension funds.
It also bolsters a call this week by Canada's premiers for a national summit on pensions, said Steven Barrett of the Toronto-based law firm Sack Goldblatt Mitchell.
"If anything, I think it reinforces the call for government and legislative action to enhance the pension plans of workers who are facing retirement with either pension plans that have been seriously eroded over the last year or so or workers who simply have no, or inadequate, pension coverage," said Mr. Barrett, who intervened in the case on behalf of the Canadian Labour Congress.
"[The court]in fact says it is up to legislatures and governments to develop pension plans that protect workers."
At their meeting in Regina this week, the premiers jointly called on the federal government to hold a national gathering to find ways to assist Canadians who are facing retirement without adequate income.
Ontario Premier Dalton McGuinty cited a recent study that showed that, by 2030, two-thirds of Canadians will not have enough retirement income to pay for their necessary living expenses.
But David Vincent, a senior partner at law firm Ogilvy Renault, sees the decision as being about controlling costs and providing corporations with predictability in earnings.
The ruling confirms "the economic reality of today," Mr. Vincent's office said in an e-mail to The Canadian Press.
"Defined benefit pension plans are just too unpredictable and expensive for businesses to maintain while staying competitive," said the e-mail.
The Kerry Canada case pitted the company against some of its current and former employees and had been closely watched by business, unions and the pension industry.
It stemmed from 1985, when Kerry began paying administrative costs for the pension plan from the pension itself, and then took a contribution holiday.
Then, in 2000, the company amended its plan, closing its defined benefit plan to new employees, and creating a defined contribution plan.
Kerry employees asked the Ontario Superintendent of Financial Services to investigate the firm after it changed the plan.
In June, 2007, the Ontario Court of Appeal ruled that an employer could stop paying pension plan expenses if there was nothing specifically in the plan to prevent it.
It also concluded that the company would not have to pay back the money it took from the fund while it took a contribution holiday.
The Supreme Court agreed, saying there was nothing in the plan preventing the company from avoiding making payments if the fund was in surplus, and nothing stopping it from transferring funds from one part of the plan to the other.
"The plan documents do not preclude combining the two components in one plan and nothing in these documents or trust law prevents the use of the actuarial surplus for the [defined contribution]contribution holidays," Mr. Justice Marshall Rothstein wrote.
The Supreme Court ruled that Kerry was not obligated to pay pension expenses out of pocket, because those expenses were incurred for the benefit of pension plan members.
"The payment of plan expenses is necessary to ensure the plan's continued integrity and existence, and the existence of the plan is a benefit to the employees," Judge Rothstein wrote.
"It is therefore to the exclusive benefit of the employees that expenses for the continued existence of the plan are paid out of the fund."