A court decision made in the NL Court of Appeal on Jan. 15 may have far-reaching implications for defined pension plans in this province and all of Canada. One of those that may be impacted is the pension plan for Wabush Mines, which was underfunded by Cliffs Natural Resources and left the pensioners out in the cold.
The decision on the Pension Benefits Act by the court said the deemed trust clause in provincial legislation should protect pensioners and that companies are responsible for fully funding pension plans, and secondly, the plan administrator is recognized as a secured creditor in a Companies' Creditors Arrangement Regulations process.
“Which means that any company that’s operating here has an obligation to fulfill that commitment, to fully fund the pension plan,” said Labrador West MHA Graham Letto. “When Wabush Mines shut down the pensioners here took a 25 per cent cut in their pension and lost their medical benefits. According to the NL Court of Appeal, deemed trust does what we’ve been arguing, that it covers the unfunded liability.”
Letto said Wabush Mines pensioners weren’t previously considered a secured creditor in that process and now they are, which means that money through the sale of Wabush Mines or the sale of equipment is kept in trust by CCAA and is supposed to be paid out to the creditors.
“It is precedent setting, not just for Newfoundland and Labrador but for the whole country. This is a major shift and a major decision for pension plans in general in defined benefit plans. It’s no different than what Sears is going through now, they’re going through the same thing.”
When Cliffs Natural Resources shut down Wabush Mines in 2014, the company left the workers’ pension plans with deficits of more than $50 million combined. Under the federal CCAA protection, the company was permitted to stop paying into the pension fund.
The Provincial Government asked the Newfoundland and Labrador Court of Appeal for an interpretation of the Pension Benefits Act, in particular Section 32, to interpret pension protections for those affected by a company closure.
Section 32 of the Act, known as the ‘deemed trust’ clause, states in part that an employer shall ensure, with respect to a pension plan, that the money in the pension fund is to be kept separate and apart from the employer's own money, and shall be considered to hold the amounts in trust for persons with an entitlement under the plan.
It specifically states that where a pension plan is terminated in whole or in part, an employer who is required to pay contributions to the pension fund shall hold in trust for the member or former member or other person with an entitlement under the plan an amount of money equal to employer contributions due under the plan to the date of termination.
The Quebec courts and federal courts have been of the opinion that this clause does not cover the pensioners of Wabush Mines. While this decision said that it does, that doesn’t mean the Quebec courts have to abide by it.
“This is a reference,” Letto said. “The Quebec court doesn’t have to accept it but, as courts do, they can use this judgement as a reference. It does give them some ammunition to fight the case in Montreal. It’s a major shift in pensions across the country.”
Newfoundland and Labrador is the only province in Canada with a deemed trust clause in the pension act.
The court decision is available online at at:http://records.court.nl.ca/public/supremecourt/decisiondownload/?decision-id=4221&mode=stream