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Supreme Court of Canada Releases Decision on Use of Pension Surpluses and Payment of Expenses in Nolan v. Kerry (Canada) Inc.

Posted on August 12, 2009 by Heenan Blaikie

The Supreme Court of Canada has released its long awaited decision in Nolan v. Kerry (Canada) Inc.  The Supreme Court of Canada dismissed the appeal of former employees against Kerry (Canada) Inc. ("Kerry") arising out of a dispute over the payment of Plan expenses and the use of pension surpluses to fund contribution holidays.

In 1994, Kerry assumed a defined benefit pension plan (the "Plan") established by a predecessor. The pension fund was held pursuant to a trust agreement that was amended in 1958 to provide for the payment of expenses incurred by the trustee by the company.  Until 1984, the company paid all expenses of the trust and Plan. Commencing in 1985, Plan expenses for actuarial, investment management, and audit services were paid from the pension fund.  The company also started taking contribution holidays.  In 2000, Kerry amended the Plan to introduce a defined contribution ("DC") component.  In addition to using the surplus in the Plan to take contribution holidays from the defined benefit component, Kerry also decided to use the surplus assets to take contribution holidays from the DC component.  Plan members sued.  

The majority of the Supreme Court of Canada upheld the decision of the Court of Appeal dismissing the employee's appeal. The majority held that sponsors may take a contribution holiday by using surpluses in the defined benefit portion of the Plan to fund contributions in the defined contribution portion of the Plan.  The majority also held that there is no common law or statutory obligation requiring sponsors to pay Plan expenses and the fact that the sponsor had paid expenses for years, did not create an obligation to continue to pay those expenses. Rather, the majority held that the obligation to pay expenses is to be determined by reference to the trust agreement and Plan documents.

For more information on this decision, see Labour & Employment in the News:  "The Supreme Court of Canada Releases the Kerry Decision: More Good News for Pension Plan Sponsors", online.
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